A Perspective on Frugality in Growing Economies: Triggering a Virtuous Cycle between Consumption Propensity and Growth

The relationship between Growing economies have recovered from the global financial crisis faster than many developed economies and increased the consumption significantly over the past years. In light of the role of their consumption growth in global sustainability, this paper analyzes the decisive factors leading to a virtuous cycle between consumption propensity and investment in growing economies. An empirical analysis was conducted to identify the contributing factors to such a cycle in 40 countries. They could be divided into three economic groups by the marginal propensity to consume. The results suggest that growing economies suffer from an autarky cycle between consumption and GDP due to insufficient investment elasticity against consumption elasticity while advancing and advanced economies allow GDP growth to induce investment efficiently. A possible trigger for inducement of investment by growth in growing economies can be 'frugality'