Abstract
This paper examines the impacts of some external and domestic factors on two measures of domestic savings (DS) in a sample of developing countries over the period 1980-82. No strong statistical evidence is found to support the hypothesis that external resources (i.e., official aid and borrowed capital) inhibit DS by substituting for them. On the other hand, favorable trade conditions (as represented by the rate of growth of the external terms of trade) are consistently found to be positively and significantly correlated with DS. These results are suggested to support the old slogan ‘trade not aid,’ if it is interpreted to mean that aid should not be considered as an alternative to profitable trade opportunities.
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