Savings behaviour and savings mobilization in developing countries : a comparative analysis of the Philippines and Thailand

This study analyzes the mobilization of domestic resources in the Philippines and Thailand, with special emphasis on the financial sector. The analysis consists of three parts. In the first part, the development of the level of savings in both countries is evaluated and alternative savings theories are examined. For households, the most important savings sector, the official national income accounts estimate is compared with a flow-of-funds estimate based on data compiled from a multitude of sources. The estimation of alternative savings functions reveals that income and income distribution are the main determinants of the level of savings, while interest rates, inflation, foreign capital inflow and financial intermediation have only a small impact overall. In the second part of the study, the performance of the Philippine and Thai financial systems with respect to savings mobilization is evaluated. The six main financial instruments, that is, deposits, deposit substitutes, long-term debt securities, corporate shares, life insurance and employee benefit funds are analyzed with respect to accessibility, liquidity, yield, risk, product variation and information. It is argued that weaknesses in the financial systems and lack of attractive financial instruments are mainly due to ill-conceived government regulations and insufficient initiative on the part of the private financial institutions. In the third part of the analysis, the structure of personal savings and the factors that influence it are studied. In order to explain the allocation of surplus funds among various financial instruments, the portfolio selection approach is applied. This is the first such attempt for developing economies. The results suggest that the framework of expected utility maximization in the form of mean-variance analysis is not adequate to explain fully the choice behaviour of individual investors in the Philippines and Thailand.