THE IMPORTANCE OF DOMESTIC SAVINGS FOR SUSTAINABLE HIGH GROWTH

Abstract

One of the important problems developing countries face is their failure in generating a sustainable development path. The engine of economic development is capital accumulation. Together with human capital-qualified labor force, number and quality of entrepreneurs, size of the market and knowledge accumulation, economic development necessitates capital accumulation. In an economy capital accumulates through additions to investment goods.

Domestic savings is a safe resource for financing investment to generate economic growth.  Developing countries not having sufficient domestic savings for financing investments use external savings for that purpose.  Turkey received significant amount of external savings through capital flows specifically after 2003. However, although external savings contribute to high growth rates for a certain time, because it is very sensitive to deteriorations in macroeconomic indicators, there is always the risk of a sudden outflow.  This makes the country vulnerable to external shocks, and sudden outflows create serous destructions in the economy. Therefore, economic growth based on external savings creates concern for the sustainability of growth.

In Turkey it seems possible that small size producer can generate a high level of domestic savings through organizing into cooperatives.   The increase in domestic saving through this process will form a sound resource for the investment.