Saving and Growth: A Reinterpretation

100 Pages Posted: 18 May 2000 Last revised: 20 Sep 2010

See all articles by Christopher D. Carroll

Christopher D. Carroll

Johns Hopkins University - Department of Economics; National Bureau of Economic Research (NBER)

David N. Weil

Brown University - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: September 1993

Abstract

We examine the relationship between income growth and saving using both cross-country and household data. At the aggregate level, we find that growth Granger causes saving, but that saving does not Granger cause growth. Using household data, we find that households with predictably higher income growth save more than households with predictably low growth. We argue that standard Permanent Income models of consumption cannot explain these findings, but that a model of consumption with habit formation may. The positive effect of growth on saving implies that previous estimates of the effect of saving on growth may be overstated.

Suggested Citation

Carroll, Christopher D. and Weil, David Nathan, Saving and Growth: A Reinterpretation (September 1993). NBER Working Paper No. w4470. Available at SSRN: https://ssrn.com/abstract=227972

Christopher D. Carroll

Johns Hopkins University - Department of Economics ( email )

3400 Charles Street
Baltimore, MD 21218-2685
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National Bureau of Economic Research (NBER)

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David Nathan Weil (Contact Author)

Brown University - Department of Economics ( email )

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United States
401-863-1754 (Phone)
401-863-1970 (Fax)

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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