Optimal Saving, Optimal Investment and Economic Growth: Evidence from Countries with different income and openness levels

Abstract

This study explores the relation between both saving rate and the ratio investment/GDP on economic growth for a wide sample of countries with different income and openness levels. The evidence indicates that in general higher saving and investment are growth promoting, in special in lower and closer economies. There the capital marginal return must be higher because of the scarcity of capital proper of less developed economies. In turn, the lack of external markets imposes the necessity to increase saving and investment in order to expand the domestic markets. Besides, savings and investment that maximize the growth rate are higher than the modal values. Thus, to increasing them should promote higher growth rates. Economic policy recommendations are that the governments should impulse austerity both at public and private level, as fiscal policies and a tax system tending to achieve higher saving and investment rates.