Dual Dynamics of Savings: Comparing Solow’s and Pasinetti’s Models on Global Consumption Inequality


Elçin M. F.

EconTR 2024 V. International Conference on Economics, İstanbul, Turkey, 16 - 18 May 2024, pp.40-41

  • Publication Type: Conference Paper / Summary Text
  • City: İstanbul
  • Country: Turkey
  • Page Numbers: pp.40-41
  • Dokuz Eylül University Affiliated: Yes

Abstract

This paper extends the investigation of global consumption inequality through empirical and theoretical analyses using the Penn World Tables 10.01 dataset from 1970 to 2019. Initially, countries are categorized into five distinct groups according to their consumption levels to illustrate global consumption patterns and the persistence of consumption inequality over time. Our findings reveal that countries in the lowest class struggle to ascend to higher consumption groups. At the same time, those in the top tier maintain their status across decades. The paper delves into the theoretical implications of savings rate differences among these groups, guided by the Solow-Swan model, which traditionally posits that higher savings rates facilitate improvements in per capita consumption and overall economic growth. By expanding this analysis, the paper incorporates Pasinetti's (1962) argument that higher savings rates among the poor might disproportionately benefit the wealthy, thereby exacerbating rather than easing income inequality. This inclusion challenges traditional economic views that uniformly advocate for higher savings to promote equitable growth. This theoretical discourse sheds light on how savings behaviors can impact economic classes differently, highlighting the complex interplay between macroeconomic policies and their socio-economic consequences. By comparing these models, the study seeks to enrich the dialogue on economic development strategies and provide a more comprehensive understanding of how savings rates affect consumption patterns and economic stratification globally.

JEL codes: E21, O47, C21

Keywords: Consumption-Saving, Solow Growth Model, Demand-led Growth Models, Cross-Sectional Models.