Savings behavior and its implications for domestic resource mobilization : the case of the Republic of Korea
Yusuf, Shahid | Peters, R. | AEA
This paper focuses on the path of domestic resource mobilization in the Republic of Korea over the past twenty years, and on the probable medium term trend. Achievement of the investment targets of the Fifth Five Year Plan within the confines of the current environment of the world capital markets will require a strong recovery of national savings from the depressed level which followed the second oil-price shock. The first section of this paper briefly reviews the underlying behavioural relationships which have been identified in the theoretical literature as affecting savings. From this, a number of potential explanatory variables are selected, which are tested empirically in the second section. The analysis reveals that Korean savings behaviour is explained by current income, growth of income, rate of inflation, and the real time deposit rate. The course of domestic resource mobilization in the Korean economy is simulated according to the movements of these variables as envisioned in the Fifth Plan. The result of these simulations reveal a need for additional foreign savings, if the growth targets of the Plan are to be met.
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