Habit formation, as far as it is related to consumption patterns, is no doubt one of the important factors in terms of explaining the high savings rate, specially in the high growth period. But as far as its relation with growth is concerned, it may be difficult to decipher the "chicken-and-egg" problem. There definitely is a two way relationship. It may be true that in some countries, despite high savings rate, growth may be moderate. Case of India during the 1960s and 1970s is an example. Despite reaching around 20%, the savings rate did not result in high rate of growth. At the same time, it cannot be used as an example to sustain Miyake's contention that high rate of growth leads to high savings due to slow adjustment of consumption.

High savings rate, in order to impinge on the rate of economic growth, has to be integrated with efficient (whatever that term may connote) allocation of these savings through capital markets. But once growth takes root, it is quite possible that increase in consumption falls behind the rise in incomes leading to high savings.

I also have not come across any cause and effect studies and would be interested to hear if there are any around related to Japan or any other country.

anil

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Anil Khosla
Centre for Japanese and Korean Studies
Leiden University
Arsenaalstraat 1 Tel: +31 (0)71 27 22 13
P.O. Box 9515 2300RA Leiden Fax: +31 (0)71 27 22 15
The NetherLands e-Mail: Khosla[atx]rullet.leidenuniv.nl
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