Determinants of Saving Behavior of Farm Households in Rural Ethiopia: The Double Hurdle Approach

Abstract

This study examined the factors that affect saving behavior of rural households in Benishangul Gumuz Regional Sate. The study employed descriptive statistics and double hurdle model to analyze the data collected from a sample of 325 farm households in the study area. The descriptive result showed that about 68 percent of sampled households save in the formal financial institutions where as 29 percent did not save at all. The result of  double hurdle model  provided  empirical evidence on a positive and significant effect of age, income and education on household’s decision to save; whereas household size, distance to formal financial institutions and employment status negatively influenced their decision to save. With regard to the extent of saving; income of a household, level of education, landholding size and involvement in petty trade activities showed a positive significant effect on the amount of saving; whereas household size, employment status and distance to formal financial institutions significantly reduced the amount of saving by households. The findings implied the need for designing strategies that could improve the saving behavior, mobilization and diversification of saving by households. Finally, building capacity through education and information systems in mobilizing saving as well as encouraging financial institutions to implement door-to-door service provisions to enhance saving behavior of households are desirable.

Keywords: Household, Savings, Double hurdle, Assosa