Savings behaviour in low-income countries

The empirical literature on savings in low-income countrieshas exploited some remarkable data sets to shed new light onsavings behaviour in the poor agricultural households that makeup the majority of the population in such countries. A numberof conclusions have emerged: (i) the degree of consumption smoothingover seasons within the year and across years, in response tovery large income fluctuations, is higher than was supposed;(ii) the lack of complete insurance and credit markets, however,is manifested in asset stocks and asset compositions among farmers,especially small farmers, that are inefficient; (iii) the combinationof low and volatile incomes is an important cause of inefficiencyand income inequality; (iv) the proximity of formal financialinstitutions increases financial savings and crowds out informalinsurance arrangements, thus, in principle, better facilitatingfinancial intermediation; and (iv) simple life-cycle modelsof savings do not appear to explain long-term savings in low-incomesettings.