Savings And Its Determinants In West Africa Countries

Abstract

This study and investigated the determinants of domestic savings in West Africa during 1980-2006. The theoretical foundation for this study is anchored on Hall hypothesis of consumption. The Hall hypothesis states that consumption is a function of lifetime ("permanent") income, rather than income in each period independently. The model assumes that capital markets are perfect and the interest rate varies over time across countries and consumers have rational expectations regarding the income- generating process. Thus, the empirical results are as follows: The size of effect of the dependency ratio, and interest rate on domestic savings is found out negative and insignificant, growth of GDP though positive but statistically insignificant, only the government budget surplus and inflation rate are found to be statistically significant. The development of West Africa financial market has a positive effect on savings, and finally, the real interest rate, and terms of trade have insignificant impact on the level of saving in West Africa.

Keywords: Gross Domestic savings, Hall Hypothesis, West Africa, Panel data