Theories of savings and economic growth

Abstract

This paper reviews different approaches to the study of individual saving behaviour and aggregate saving propensities, and discusses the role of the latter in the process of economic growth. While savings were strictly linked to income sources by Classical and Post-Keynesian theories, simple partial-equilibrium models explain individual saving decisions in the light of private investment returns and labour-income dynamics. If optimal saving decisions are embedded in a dynamic general equilibrium framework of analysis, however, the parameters of individual saving problems are jointly determined by aggregate savings and investment outcomes, and ultimately by the character of income distribution at the aggregate level. The paper concludes noting formal and substantial similarities between some aspects of earlier theories and recent developments.