The role of savings and investment in the world economy

Savingss and investing drama an of import function in our universe economic system. Consumption is expenditures by family on concluding goods and services. Salvaging is the portion of the disposable income that is non consumed at present investing means the purchase of capital goods ( such as land, Equipment, constructing e.t.c ) . If a society invests more in capital, it must devour less and salvage more of its current income. It requires that society forfeits ingestion of goods and services in the present to bask higher ingestion in the hereafter. States that save and invest big fraction of their incomes tend to hold rapid growing of end product, income and rewards.

Savingss can be subdivided into private economy. Public economy, national economy e.t.c. Investment includes touchable capital such as houses and intangible investings such as instruction. Again, investing can be Net investing or Gross investing. Net investing is the value of entire investing after an allowance has been made for depreciation. Gross investing is an investing without allowance for depreciation. In finance footings, “ Investing has an wholly different significance and denotes the purchase of a security, such as a stock or a bond ” . Salvaging can be influenced by degree of ingestion, Population growing, political stableness or instability, the rate of income e.t.c. It is known to us, salvaging influences over investing in an economic system. So salvaging is really important subject to investing. If the rate of salvaging is increased, it means the addition rate in investing or capital accretion or efficiency in productiveness.


* Private economy:

Private economy is that portion of disposable personal income that is non consumed. Personal economy peers Personal income subtraction Personal spendings ( i.e. ingestion and involvement ) . In general, Personal economy is the income of persons which can stay on their bank histories for future usage or can be straight invested in houses, bonds, portions and other fiscal instruments.

We can explicate personal economy in the undermentioned manner:

Let, Mr. X ‘s income is tk 20,000. Harmonizing to authorities revenue enhancement regulations and ordinances he pays the authorities revenue enhancement 2,000. So, Mr x ‘s disposable income is Tk ( 20,000-2,000 ) = Tk 18,000. when the disposable income of Mr is Tk 18,000, at that period Mr x ‘s ingestion is Tk 16,000. So Mr x ‘s economy is Tk ( 18,000-16,000 ) = Tk 2,000.

From the above computation we can briefly compose down how the personal economy ean be found.

Personal Income Tk 20,000

( Less ) : Personal revenue enhancements Tk 2,000

( Peers ) : Disposable Personal Income Tk 18,000

( Less ) : Personal spendings Tk 16,000

( Including ingestion and Interest )

( Peers ) : Personal Saving Tk 2,000

*Public Economy:

Public economy is the authorities income fundamentally revenue enhancement gross that the authorities has saved after paying for its disbursement. Ordinary Government saves a partial sum of the income for functioning several intents such as human activities for the state ‘s development or gives the people certainty

For good wellness, instruction and other societal public assistance. Public salvaging peers revenue enhancement grosss minus public outgos.

*National economy:

National salvaging peers private salvaging plus public economy which remains after supplying ingestion and Government outgos. Actually, National economy is the combination result of personal concern and province economy. Now, Come to the point on Business economy, When Business or any fiscal establishment earns a batch of net income, so it saves a partial sum to carry through the hereafter needs or to bring forth concern constituents. Businesss save in that period, when they do non actively administer its net incomes /dividends among the participators/ stockholders.

National income, Consumption, salvaging and Investment play an of import function in exposing a state ‘s economic public presentation. These elements are closely related. Salvaging indicates the sum that remains after paying for ingestion and Government purchases. When salvaging is invested ; ‘ used to buy new capital goods is called investing.

We can utilize a theoretical account for demoing National Income ( GDP ) : ( For closed Economy )

Y = C+I+G.

Here, Y = National Income

C = Consumption

I = Investing

And G = Government purchase.

National salvaging indicates the sum that is non spent for ingestion and Government purchases. Anything that sum is non consumed is pretended to be invested.

National nest eggs a†’ Y-C-G=I

Replacing S for Y-C-G, We can compose the equation as:


National economy is the combination of private economy and public economy. Private economy is the sum of income that families have left after paying their revenue enhancements and for their ingestion. Public economy is the sum of revenue enhancement gross that Government has left after paying for its outgos. Therefore, a new term T comes in the Equation:

S= ( Y-T-C ) + ( T-G )

Billions of dollars

Disposable income Savingss


Old ages

We can explicate disposable Income, salvaging and ingestion from the above graph, in where old ages are shown on horizontal Axis and the sum of dollars and shown on perpendicular Axis. Say for Example, in 1930 a state ‘s income ( Disposable ) was 3,000, and so its economy will be Disposable income less ingestion. We can cipher the Gap between and investing utilizing the salvaging method. It can be noted hereby that, if the ingestion additions, salvaging will diminish and frailty versa.

Statisticss in Saving & A ; Investing:

TABLEA ( salvaging as Percentage of GDP )


Domestic Salvaging

National Saving

























Beginning: Bangladesh Bureau of Statistics ( BBS )

Postpone A Presents the year-wise rates of domestic and national nest eggs for the last few old ages. In FY 2001-02 domestic and national nest eggs as per centum of GDP were 18.16 and 23.44 Percent severally. Domestic and national nest eggs had reached to 20.31 to 30.21 per centum of GDP severally in FY 2007-2008. Harmonizing to probationary estimations, the rates of domestic and national nest eggs have been assessed to be 20.01 and 32.37 per centum of GDP in FY 2008-2009. From the tabular array It is clear that there is a uninterrupted increasing tendency of national nest eggs but domestic nest eggs as per centum of GDP has been diminishing since FY 2007-2008.

Table B ( Investment as per centum of GDP )


Entire Investing

Public Investment

Private Investing

































Beginning: Bangladesh Bureau of Statistics ( BBS )

Table Bacillus shows the year-wise investing as per centum of GDP for the last few old ages. In FY 2001-2002 the rate of entire investing was 23.15 per centum of GDP in which the portions of public and private sectors were 6.37 per centum and 16.78 per centum severally. The rate of national investing bit by bit picked up to 24.65 per centum of GDP in FY 2005-2006 but in FY 2006-2007 it declined to 24.46 per centum. In FY 2008-2009 the rate of national investing farther declined to 24.18 per centum.


The planning and execution division should be restructured to do economic development. We have to make a favourable investing clime around the universe altering the old tradition nest eggs and investing form, the Government will be able to increase its public expenditures up to 20 per centum to 16 per centum. We have to pull 30 per centum more investing than the present degree to go a in-between income state. For this, We can promote big scale private investing from both domestic and foreign enterprisers. Bangladesh is victim of clime alteration. Cipher comes frontward with investing when the inquiry of extenuating environmental hazards comes. The bing fiscal establishments that deal with clime fund are non equipped plenty to widen support and promote investing in the hazard direction countries. Therefore, these fiscal establishments have to determine in a proper manner. Differentiation should be made carefully between the two constituents of domestic economy, private economy and public economy as the consequence of political instability on private nest eggs are likely to be significantly different from those on public nest eggs political drastically should cut down. The absence of a stable socio economic model will contradict the stimulating effects of economic forces on salvaging and growing. Since higher export net incomes and remittals from abroad are found to do a higher economy rate, The Government should prosecute economic policies to smartly advance exports of trade goods every bit good as manpower abroad Pro-export policies such as allowing easier recognition entree to exporting houses, set uping more export processing zones, actively helping the exportation houses for seeking foreign market, revising and updating the antediluvian concern regulations and ordinances e.t.c would back up the bing exportation houses and pull more enterprisers into the export sectors. Most salvaging surveies have by and large included subsets of the undermentioned economic variables as determiners of domestic nest eggs. the GDP, growing rate, per capita income, export net incomes, existent involvement rate, foreign capital, rising prices rate, age dependence ratio e.t.c.


Policymakers should stay wary of the linkage between reduced economic growing and a lower economy rate, which in bend reduces future economic growing potency and therefore sets a barbarous rhythm in gesture. Harmonizing to samuelson and Nodhaus-

The grounds behind the crisp diminution in the personal economy rate:

Social security system: Harmonizing to life rhythm theoretical account, a family would salvage during working old ages to construct up a security in hereafter after retirement. When the Government collects societal security revenue enhancements and pays out societal security benefits, people have less need to salvage for retirement. Other income support system have a similar consequence, cut downing the reed to salvage for a showery twenty-four hours. Corps insurance for husbandmans. Unemployment insurance for workers and medical attention for the hapless aged all alleviate the precautional motivation for people to salvage.

Capital market: Capital market allows people to borrow more easy. One illustration is the proliferation of recognition cards, which encourage people to borrow. Some believe that the handiness of easy recognition reduces savings among those who have little in liquid assets.

The rapid growing in wealth: The ground behind the diminution in the personal economy is caused by the rapid addition in personal wealth, chiefly due to detonating in capital market. From 1995 to 1999 for illustration, the value of stocks rose by about $ 5 trillion. If family spent 3 per centum of this addition each twelvemonth, the wealth consequence would take down the personal economy rate by about 3 per centum points.

Businesss buy capital goods when they expect that this action will gain them a profit- that is, will convey them grosss greater than the costs of the investing. This simple statement contains three elements indispensable to under standing investing: grosss, costs and outlooks:

Gross: The overall degree of end product ( Or GDP ) will be an of import clincher of investing. When mills are lying idle, houses have comparatively small demand for new mills. So, investing is slow. More by and large, Investment depends upon the grosss that will be generated by the province of overall economic activities.

Cost: The 2nd of import clincher of the degree of investing is the cost of puting. It means the costs of borrowing. It is the given involvement rate on borrowed financess. Additionally revenue enhancements can hold a major consequence on investing. Sometimes the Government gives revenue enhancement interruptions to peculiar activities or sectors. , For illustration, The Government encourages place ownership by leting place proprietors to subtract real- estate revenue enhancements on mortgage involvement from their nonexempt income.

Expectation: The 3rd is Expectation to find investing. It means net income outlooks and concern assurance. If concern are concerned that political conditions in Bangladesh are unstable, they will be loath to put at that place. Conversely, if concern believe that ( justly or wrongly ) that Internet commercialism will be an of import characteristic of the distribution cyberspace work, they will put to a great extent in that sectors.


From the above treatments, It is proved that the whole intent of the cost benefit analysis is to choose the undertakings for investing or put down the investing standard where no undertakings are inter dependant or reciprocally sole and where there are no restraints. The undertakings which maximizes the present value of entire benefits less entire costs can be indicated as under:

We have to choose all undertakings where the present valve of benefits exceeds the present value of costs.

We have to choose all undertakings where the ratio of the present value of benefits to the present value of costs exceeds integrity.

We have to choose all undertakings where the changeless rente with the same present value of benefits exceeds the changeless rente ( of the same continuance ) with the same present value as costs.

We have to choose all undertakings where the rate of return exceeds the chosen rate of price reduction.

By and large, Investment should be made in those industries which produce trade goods holding a readily available demand. Now, we can understand easy that salvaging is the portion of Disposable Income. Salvaging creates investing which is resulted in capital accretion. productiveness addition, growing e.t.c. If economy is non kept in a proper manner, a state will non make its coveted end. It is besides true that the rich states have more inclination to salvage and the hapless states have less inclination to salvage. Salvaging inclination may be caused by a state ‘s degree of income. Salvaging is the cardinal clinchers to find a state ‘s criterion of life. Salvaging leads a state to turn out its competence or quality relative to other states around the universe. Necessary stairss should be taken to increase nest eggs and investing inclination in the people both private and public sectors by the Government and universe leaders.