National Saving, Foreign Debt and Government Deficits

Abstract

In Chapter 3, reference was made to the importance of national saving as a source of funds for the investment needed to improve the rate of productivity growth. If national saving was inadequate for this purpose, then a country would have no alternative but to either scale back the level of its investment or else to seek funds from abroad. This chapter details the relationship between government behaviour (as exemplified by its expenditure and revenue decisions which, in turn, determine the size of its budgetary surplus or deficit), national saving and foreign borrowing.