Preference Change with Capital and Knowledge

Abstract

After the Second World War some nations have exhibited very high economic growth rates. The economic conditions in the areas such as Korea, Singapore, Taiwan, and Hong Kong have improved rapidly while in other areas, such as the People’s Republic of China, economic conditions have remained at an undeveloped level. Many cultural and political factors help to explain the developmental differences among these Asian nations. One of the main factors determining such differences may be the differences in attitudes toward savings and education held by the respective areas. It has been well recorded that savings rates have exhibited great differences in different countries over the world. For instance, Japan, South Korea and Taiwan have much higher savings rates than the Western Europe and the United States. Even in the same country saving behavior may be quite different in different development periods. Demographic factors and economic factors such as real growth rates, per capita income and wealth were proposed to explain the rapid rise in saving. When we compare saving behavior in these areas at the initial stage of economic development, Koreans saved ‘little’ relative to Japan, but not relative to Taiwan. In the later stage, the three economies’ savings ratios tend to converge. As mentioned by Hsieh and Hsing (1994), one area that has not received adequate attention is the change in saving due to the change in disposable income during different stages of economic development. Considering the permanent-income hypothesis and the Keynesian consumption function, Hsieh and Hsing empirically showed that the MPSs (marginal propensity to saving) for South Korea and Taiwan characterized by rapid economic growth have been on the rise, whereas the MPSs for Thailand and India with moderate or low economic growth have been stable.