Saturday, April 3, 2010

Encouraging Saving: Lessons for Developed and Developing Countries

By Robert J. Shiller in the Yale Journal of International Affairs

Adam Smith’s 1776 book An Inquiry into the Nature and Causes of the Wealth of Nations had an explanation for the great diversity of economic outcomes across countries. Some countries save more than others, and thereby accumulate more capital, that is, more productive resources. This, Smith argued, was a big part of the picture in explaining why some nations are rich and some are poor. His conclusion has intrigued economic theorists ever since. There has been much interest and dispute about his conclusions.

As developed and developing nations recover from the financial crisis and begin to set new directions for the development of their countries, it will serve them well to heed the words of Adam Smith on the importance of saving and capital accumulation. Indeed, promoting the savings rate is no longer simply an ambition of developing nations, but has also become a major goal of developed nations, especially those in Europe that face aging populations.

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