rowth. Most working papers and journal articles on cross countries studies assume a positive relationship between household saving and economic growth and an adverse relationship between consumer debt and economic growth.
The difference between a household's disposable incomes (primarily wages obtained, proceeds of the self-employed and net property returns) and its consumption (spending on products) is known as household saving. When the household saving is divided by household disposable income, the household savings rate is computed. When a household uses more than it obtains as expected income and funds some of the spending through credit (growing debt), through returns coming from the sale of resources, or by making cash and deposits, there is usually a negative savings rate.
These discrepancies are fairly due to institutional distinctions between countries. These include the degree to which old-age pensions are financed by government rather than through personal savings, and the level to which governments offer insurance against sickness and unemployment. The age composition of the population is also significant, as the elderly tend to run down financial assets obtained during their working life. This implies that a country with an ageing population will generally have a low household saving rate.
The conformist view is that savings contribute to higher investment and hence higher GDP growth in the short run (Bacha, 1990; DeGregorio, 1992; Jappelli and Pagano,1994). The central idea of Lewis's (1955) traditional development theory was that increasing savings would accelerate growth. Kaldor (1956) and Samuelson and Modigliani (1966) studied how different savings behaviors induced growth. On the other hand, many recent studies have concluded that economic growth contributes to savings (Sinha and Sinha, 1998; Salz, 1999;Anoruo and Ahmad, 2001).
Over the last 10-15 years, household saving rates have increased in Austria, Germany and Sweden and remained stable in Belgium, France and Switzerland. A downward trend over the same period has occurred in Canada, Italy, Japan, Korea, Poland and the United States. (OECD (2010), National Accounts of OECD Countries, OECD, Paris)
The main factors contributing to differences among countries are listed below:
The income effect: in general higher income leads to a higher saving rate;
The wealth effect: profits or losses on financial and non-financial assets and liabilities affect built up wealth, and thus probably expenditure, but not on income. Higher wealth may then lower the saving rate;
Credit facilities: in countries (e.g. UK and US) where consumption credit was easier to finance, saving rates may be comparatively lower;
Institutional factors such as differences in social security schemes, especially pension schemes and the tax system;
The proportion of own-account entrepreneurs and small unincorporated enterprises, within the household sector, because producers may have a different saving behaviour;
Households' expectations as regards the future economic situation;
Cultural and social factors.
Hondroyiannis (2004) analyses the long term and short term causal factors of aggregate private savings in Greece using data for the time frame of 1961-2000. By considering the financial and demographic advances during this phase
