Determinants of Private Saving in Ethiopia: Johansen Co-Integration Approach

Abstract

Saving has its own effect on economic growth and thus needs a more vigorous work being done about. In addition, in the pursuit of studying saving, the core point to be focused will be its determinants. Therefore, the main objective of this research is to empirically examine the main determinants of private saving in Ethiopia for the period ranging from 1971-2015 by using Johansen maximum likelihood co-integration approach. The result shows that level of real per capital income, inflation, urbanization ratio, bank branch and the dummy variable for political instability are significant variables to determine private saving of Ethiopia in the long run. Moreover, level of per capital income, urbanization ratio, bank branch and the dummy variable for political instability have significant positive effect on private saving of Ethiopia. However, inflation rate influencing private saving negatively and significantly. In addition, in the short run only level of per capital income, Urbanization ratio and bank branch at their difference are statistically significant in determining private saving. Gross domestic product per capital income and urbanization ratio have positive effect on private saving whereas Bank branch has negative effect on private saving of Ethiopia in the short run. Since the effects of a change in a given saving determinant are fully utilized both in the long term and short term, measures such as bank branch expansions  and improving both the quality and the quantity of export have to be considered by the concerned authorities.

Keywords: Private saving, Ethiopia, Johansen Co-integration, Long run equation and Error Correction Model

DOI: 10.7176/JESD/10-5-03

Publication date:March 31^st 2019