Very High Rates of Saving and Investment Most analysts agree that capital formation is crucial to successful development. Developed countries have much higher levels of capital per head than less developed countries, one of the factors enabling developed countries to enjoy higher productivity and incomes. Taiwan’s saving rates were among the highest ever recorded, reaching 30% to 40% in the 1950s and 1960s.
The saving ethic is deeply rooted in Taiwanese culture. Parents teach children the overriding need to save for a rainy day. Public policies keep real interest rates for savers relatively high and tax-free.
Interestingly, like fellow Tiger South Korea, Taiwan has a relatively low foreign-capital share in total investment, about 10%. High rates of saving and investment are important factors in development but
not sufficient ones. India has substantially increased its rate of investment since independence in 1947 but not until recently its growth rate, partly because capital equipment has been expensive there and partly because investments have not been made in the most productive sectors at any point in time.