Saving and growth with habit formation

Saving and growth are strongly positively correlated across countries. Rece nt empirical evidence suggests that this correlation holds largely because high growth leads to high saving, not the other way around. This evidence i s difficult to reconcile with standard growth models, since forward-looking consumers with standard utility should save less in a fast-growing economy because they know they will be richer in the future than they are today. W e show that if utility depends partly on how consumption compares to a "hab it stock" determined by past consumption, an otherwise-standard growth mode l can imply that increases in growth can cause increased saving. (JEL D91, E21, 040).