Determinants of Domestic Saving in Guinea

Abstract

Some economic literatures provide fundamental framework on the factors affecting domestic saving of countries. In Guinea a few studies have been conducted on determinants of domestic saving. To this effect, our paper provides empirical evidence on the determinants of domestic saving in Guinea for the periods 1984-2014. We used time series econometric model after testing robustness of the data. Augmented Dickey Fuller test was used to test unit root of the data. In addition, Johansen’s Co-integration technique was conducted to validate co-integration among variables. The findings of the study have revealed that foreign capital inflow has robust positive effect on domestic saving both in the short run and long run, which implies that foreign saving tend to complement domestic saving in Guinea. Per capita income has significant positive effect on domestic saving both in the long run and short run supporting permanent income hypothesis. In addition, inflation and FDI affect domestic saving positively in the long run. Growth rate of per capita income impacts domestic saving negatively in the long run contradicting the fundamental implication of life-cycle hypothesis. Financial depth and government consumption expenditure have worsening effect on domestic saving in the short run.

Keywords: Domestic saving; Guinea; Time Series Model

JEL Classification: E21