Trends and Determinants of Gross Domestic Saving in Ethiopia

Abstract

This study examined the trend and major determinants of gross domestic savings rate (GDS) in Ethiopia using secondary annual data for the period 1980-2014. Data collected from central statistical authority (CSA) and MOFED.  The macroeconomic variables used include economic growth rate, deposit interest rate, M2, foreign aid, inflation rate and age dependency ratio. The model was estimated using co-integration and error correction models to analyze the short and long run equilibrium among the variables.Results of the study show that inflation rate, age dependency ratio and broad money to GDP ratio play a significant role in determining the gross domestic savings in Ethiopia whereas real interest rates and foreign aid was not a significant determinant of gross domestic savings.The overall findings of the study underlined the importance of adopting a strict monetary policy to maintain money supply within manageable levels and ensure stable and low inflation rates which would help improve real incomes and would also cause development in the financial sector and hence improve gross domestic savings in the economy. Further, the government should formulate policies for the improvement of health care provision.

Keywords: Gross domestic savings, Age-dependency ratio, Broad money (M2), Inflation rate, Ordinary Least Squares, Ethiopia