Business Environment, 1st Edition by Pearson

| 72 | Part I: Fundamental Concepts

But it is these countries that suffer from lack of capital. This is

because of low saving in these countries. Larger families will

need a lot of money to meet their consumption expenditure.

Even when their incomes rise, they go on spending on com-

modities which they have not consumed so far. Besides, most

people in these countries try to ape the consumption pattern

of the rich and spend most of their incomes, at least a part

of which could have been saved, augmenting capital forma-

tion. Economists call this process the demonstration effect .

Hence, there is no possibility of a majority of families saving

a part of their incomes. When the level of saving is low, the

rate of investment and capital formation ...