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Analysis of Factors Affecting Private Saving in Ethiopia

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  • Assefa Tafesse

Abstract

Purpose: The objective of this paper was to investigate the determinants of private savings in Ethiopia using time series annual data from the period 1991/92-2019/20. Main research questions are what role can policy making institutions play to increase private saving and to what extent variables included in the model affect private saving in Ethiopia. Design/Methodology/Approach: The study applied the augmented Dickey-Fuller test for stationarity, Johansson co-integration test to determine the long-run relationship between variables, and the Vector error correction model (VECM) to estimate both short-run and long-run models. Findings: The estimated results indicated that inflation, real interest rate, private consumption expenditure, and age dependency ratio have a negative and significant effect on private savings both in the long run and short run. Whereas, deposit interest rate has a positive and statistically significant effect on private savings in the long-run. Furthermore, per-capita income affects private savings positively and significantly in the long run. The findings of the study indicated that stable and low inflation rates which would help improve real incomes. Practical Implications: The government should continue its effort to push for increased economic growth which will translate to increased incomes and savings. Originality/Value: The results imply that lower inflation raises growth which in turn increases savings.

Suggested Citation

  • Assefa Tafesse, 2024. "Analysis of Factors Affecting Private Saving in Ethiopia," International Journal of Finance, Insurance and Risk Management, International Journal of Finance, Insurance and Risk Management, vol. 14(2), pages 60-86.
    • Handle: RePEc:ers:ijfirm:v:14:y:2024:i:2:p:60-86
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