Does Financial Market Development Stimulate Savings?: Evidence from Emerging Market Stock Markets

Abstract

This paper examines the empirical relation between financial market development, as measured by the stock market, and gross private savings rates in 16 emerging markets over 1982-1993. With data from all 16 countries, there is evidence of a significant positive relation between savings and stock market size and liquidity. When countries with outlying values for the stock market measures are excluded, however, all significance disappears. The results suggest that we should not assume that a growing or deepening stock market will necessarily be associated with higher savings rates.

JEL Classification: E44, O16, E21