Rural savings, investment, and interest rates in developing countries : evidence from India

So concludes this study, based on a survey of 4,000 farm households in India, of the interest elasticities of rural savings and investment. Relevant literature is briefly reviewed with an emphasis on the manner in which interest rate effects have traditionally been considered. The methodology of the present study is described and a model of interest rate determination outlined. Detailed empirical findings for savings and investment functions are then presented. The results of stratifying the sample according to farm size are included, indicating that large farmers are more responsive to investment opportunities and interest costs. Results show that raising interest rates has a weak positive effect on savings but a relatively strong negative effect on investments. A low interest rate policy may be preferred, therefore, in countries where the rate of rural investment is below some socially desirable level. Appended are an explanation of the sample selection problem and a 29-item bibliography (1965-81).