Determinants of Private Saving in Ethiopia
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Date
2016-06
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Addis Ababa University
Abstract
Saving is an important instrument to enhance economic growth by providing sufficient funds for
investors. However, empirical literature that relates to mobilizing savings in Ethiopia is in broad
aggregate forms and almost no work is conducted on determinants of private savings in
Ethiopia.
For this reason this study empirically investigates the determinants of private saving in
Ethiopia by using annual data over the period 1980-2015. Accordingly to identify the factors
that affect private savings in Ethiopia the researcher employs ordinary least squaresand error
correction models fitted for time series data. The variables examined are real gross domestic
product, inflation, government fiscal balance, real deposit rates, current account deficit and
financial development indicators. The results indicate that private saving in Ethiopia is a
response for variables, real gross domestic product, government fiscal balances, real deposit
rate and financial developments but it is not responsive to inflation and current account deficit
in the long run.
In addition to this granger causality tests indicate that economic growth causes privates savings
in Ethiopia which is in line with Keynesian theory, that it is higher economic growth that leads
to higher saving.Finally, the study recommends that policy makers or government work to
improve income levels of society to address adverse effects on private saving. Likewise the study
suggests that fiscal policy should be designed and implemented in a prudent way such that it
cannot lead to crowding out private saving
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Economic Modeling and Forecasting