I Fiance Apicultural

112
increase consumption. If, on the contrary, the value of net income
decreases, then they will increase saving and reduce current consumption.
The former scenario may occur when there is a surplus in an earlier
period, but a deficit in a later period. In this case, the impact on income
would be negative; hence, the positive substitution effect can be fully or
partially offset. Whether the total impact is positive, negative, or zero in
this sccnario cannot he predicted, and it is an eml)irical question. The
scenario of decrease in net income c-an occur when there is a deficit ir
an carlier period and a strphls in a later period, leading to a positive
effect on income that reinforces the (pure) positive substitution effect 35 of
1lere, the total impact is positive.
the rise in the real rate of return.
Empirical evidence shows that the total impact on rural saving of
improving the incentive to save is positive. Among the five studies on rural
saving (Gupta 19701; B.M. l)esai 1975; 1ytn, Adains, and I lIshak 1979;
Ong 1972; and, ag-ain, I-lyun, Adams, and I-uslak 1979), four studies with
two cases on India and ow each on tie Republic of Korea and Taiwan
reveal that wheni the rt e of return initloves, saving increases and current
colstumption declines. But tlie study on the Republic of Korea, which
specifies saving per capita inistead of per hotsehold, shows exactly the
opposite (Table 5,t). 'liis suggests that this study should have captured the
effect of famtily size separately to validate more clearly the impact of the
rate of return on rtual saving, holding other factors coaistaiit. Moreover,
among the remaining 13 cases, as tiany as 6 also show the response to the
rate of retutrn to be positive. Most of these cases are on the sale countries.
But, a study that includes both Asian lICs and MICs shows this response
to be positive for 1962-72 (Friend 1963), and another oii these same
countries shows it to be negative for 1962-8(0 (Giovantini 1985). The
strength of these highly aggregative studies is, however, doubtfil.
Evidence showing that incentives to save have a positive impact On
rurai saving are flie mresult of very high positive substitution effects, which
may have nore thali oflset any possible negative income impact or been
reinforced by a positive iltcome effect. These ,may have been induced by
rapid and widespread technological chtange in agrictilti Ie in Iese conun­
1lhis Ilty hold even for tle positive impact of
tries or il the smtplhe areas.
the interest rate on gross domestic saving in the Republic of Korea. It may
also be tie case for private econoliy-wide saving in the United States
(Boskin 1978), where technological change has occurred iti all sectors. All
these stuldies show that the response of saving to the real rate of return is
not elastic, elasticity being 0.00005 to 0.50 at the most (Table 5'I).' 6
i terest ,ate increases,
35Despite these cotuplexities, soite sitdies contenIti thai when Ie
saving invariably increases and is clastic to this rate (see, for example, Adams 1978). What
Itiese studies plolablv conlsider "saving" is saving in financial deposits alone, which is
rae. But. evell this saving is ,1ot
obtviouisly positively related toI e iicnterest
United Nations Secretariat
interest-lateciastic as discussed ill Chapter 7 (Sahani 1967;
1980; Vardachary 1980; Wisenan and t tiliris 1980).
36
tqbat (1982) estimates that tins elasticity is less than 0.25 for a targe sample of rural
ber) ill India. It also shows that the ability to save influences
households (2,739 itn nm
i lerst rate. This study is not reviewed in greater detail
rut ral saving Itore tha lhe
because it estimates this elasticity for nominal intteest rates.