The Nexus of Private Savings and Economic Growth In Emerging Economy: A Case Of Nigeria

Abstract

This study discusses the trend in Nigerian saving behaviour and reviews policy options to increase domestic saving. It also examines the determinants of private saving in Nigeria during the period covering 1970 – 2007. It makes an important contribution to the literature by evaluating the magnitude and direction of the effects of the following key policy and non-policy variables on private saving: Income growth, interest rate, fiscal policy, and financial development. The framework for analysis involves the estimation of a saving rate function derived from the Life Cycle Hypothesis while taking into cognizance the structural characteristics of a developing economy. The study employs the Error-Correction modelling procedure which minimizes the possibility of estimating spurious relations, while at the same time retaining long-run information. The results of the analysis show that the saving rate rises with both the growth rate of disposable income and the real interest rate on bank deposits. Public saving seems not to crowd out private saving; suggesting that government policies aimed at improving the fiscal balance has the potential of bringing about a substantial increase in the national saving rate. Finally, the degree of financial depth has a negative but insignificant impact on saving behaviour in Nigeria.

Keywords: Private Saving, Saving Rate, Macroeconomic Policy, Interest Rate, Economic Growth.