Abstract
It is commonly believed that by creating an environment detrimental to long-term planning, political instability
reduces the domestic savings rate in the LDCs Since the domestic savings rate in Bangladesh is among the lowest in
the LDCs and the country hosts a chronically unstable political regime, it provides an interesting test case for the
hypothesis. This study estimates an error correction model of the domestic savings rate in Bangladesh and finds that
political instability has significantly depressed the domestic savings rate which underscores the importance of
promoting political stability in Bangladesh, the lack of which poses the single most challenging obstacle to
achieving its economic potential