PRIVATE SAVING IN GHANA: THE COMBINED EFFORTS OF FINANCIAL DEVELOPMENT, INTEREST RATES, AND INFLATION
Keywords:
Private Saving, FD, Interest Rate, Inflation Rate, VAR ModelAbstract
Understanding private saving behaviour of the citizenry is crucial for informed policy decisions in an economy. However, it does appear that much of the available literature is on aggregate private savings rather than on private saving behaviour. This study, therefore, updates the literature by looking at the combined effects of financial development, interest rate and inflation on private saving behaviour among Ghanaians. Data for the study were obtained from the World Bank Development Indicators between 1980 and 2019. We employed Johansen Cointegration Test; attempts are made to ascertain the existence of a long-run relationship among variables using the Vector Autoregressive (VAR) Model. The study confirms a significant positive relationship between private saving behaviour and financial development. This partly explains the relevance of deepening the financial sector through reductions in costs of performing transactions and initiating contracts to improve domestic savings. A reliance on macroeconomic variables to forecast the behaviour of private saving enjoins policy decision makers to consider the implications of their decisions on domestic savings. The study recommends among others, that, negative interest rates be considered to boost consumption, weak growth, investment, and avoid inflation during economic stagnation.
References
Abou, E. M. (2014). The effect of interest rate, inflation rate, and GDP on national savings rate. Global Journal of Economics and Management Perspective, Global Institute for Research and Education, 3(3), 1-7.
Adeleye, N. (2018). [Cruncheconometrix]. Vector autoregressive (VAR) models (Eviews), Part 2. https://cruncheconometrix.com.ng
Adusei, M. (2015). Bank profitability: Insights from the rural banking industry in Ghana. Cogent Economics & Finance, 3(1). https://doi.org/10.1080/23322039.2015.1078270
Aizenman, J., Cheung, Y.W., & Ito, H. (2017). The interest rate effect on private saving: alternative perspectives. ADBI Working Paper 715. Tokyo: Asian Development Bank Institute. https://www.adb.org/publications/interest-rate-effect-private-savingalternative.
Alemayehu, G., & Haile. K. (2003). Aggregate saving behaviour in Africa: a review of the theory and the existing evidence with a new empirical results. Ethiopian Journal of Economics, 12(1),13-42.
Altaee, H. H.A., & Al-Jafari, M.K. (2019). The impact of saving and financial development on economic growth in Turkey, Asian Journal of Finance & Accounting, 11(2). https://doi.org/10.5296/ajfa.v11i2.15481
Ando, A., & Modigliani, F. (1963). The life-cycle hypothesis of saving: aggregate implications and tests. The American Economic Review, 53(1), 55-84.
Balassa, B. (1989). The effects of interest rates on savings in developing countries. Policy Planning and Research Working Papers 55.
Bayar, Y. (2014). Financial development and domestic savings in emerging Asian countries. Theoretical and Applied Economics, 21 (7), 55-66.
Bryman, A., & Cramer, D. (1997). Quantitative data analysis with SPSS for windows: a guide for social scientists. Rutledge, London.
Campbell, C.R., & Lovati, J.M. (1979). Inflation and personal saving: an update, Federal Reserve Bank of St. Louis Review, 61, 3-9.
Caminati, M. (1981). The theory of interest in the classical economists. Metreoeconomica, 33(1-2-3), 79-104. https://doi.org/10.1111/j.1467-999X.1981.tb00669.x
de Melo, J., & Tybout, J. (1986). The effects of financial liberalization on savings and investment in Uruguay. Economic Development and Cultural Change, 34, 561-88.
Dickey, D. A., & Fuller, W. A. (1979). Distribution of the estimators for autoregressive time series with a unit root. Journal of the American Statistical Association 74(366), 427 431.
Ewetan, O.O., Ike, D.N., & Urhie, E. (2015). Financial sector development and domestic savings in Nigeria: a bounds testing cointegration approach. International Journal of Research in Humanities and Social Studies, 2(2), 37-44.
Granger, C.W.J. (1969). Investigating causal relations by econometric models and cross spectral methods.” Econometrica 37(3), 424–438.
Griffin, K. (Ed). (1972). Financing development in Latin America. Journal of Latin American Studies, 4(7), 309-312. London, Macmillan, and Co. Ltd. https://doi.org/10.1017/S002216X00002121
Group Deputies, (1995). Group of ten: saving, investment, and real interest rates, a study for the ministers and governors, Rome.
Güngör, H., Çiftçioğlu, S., & Balcılar, M. (2014). Does financial development increase private savings? the case of Turkey. International Journal of Business and Social Science, 5(2), 36-47.
Gupta, K.L. (1984). Financial intermediation, interest rate, and the structure of savings: evidence from Asia. Journal of Economic Development, 9, 7-24
Hondroyiannis, G., Lolos, S., & Papapetrou, E. (2005). Financial markets and economic growth in Greece, 1986–1999. Journal of International Financial Markets, Institutions and Money, 15 (2), 173-188. https://doi.org/10.1016/j.intfin.2004.03.006
Horioka, C.Y., & Yin, T. (2010). A panel analysis of the determinants of household saving in the OECD countries: the substitutability of social Safety nets and credit availability. Institute of Social and Economic Research, Osaka University.
Hughes, T. (2016). Are deposits safe under negative interest rates? moody’s analytical risk perspective, The Convergence of Risk, Finance and Accounting 7.
Johansen, S. (1991). Estimation and hypothesis testing of cointegration vectors in gaussian vector autoregressive models. Econometrica, 59(6), 551-1580, 1551-1580. https://doi.org/10.2307/2938278
Juster, F.T., & Wachtel, P. (1972). A note on inflation and saving rate. Brookings Papers on Economic Activities, 765-778.
Keynes, J.M. (1936). The general theory of employment, interest, and money. International Relations and Security Network, Macmillan, London.
Kwakye, J.K. (2010). High interest rates in Ghana: a critical analysis. Institute of Economic Affairs, A Public Policy Institute.
Larbi, D.A. (2013). The long run determinants of private domestic savings in Ghana: a cointegration approach. Journal of Economics and Sustainable Development 4(4).
Levine, R. (1997). Financial development and economic growth: views and agenda. Journal of Economic Literature, 35, 688-726.
Modigliani, F. (1949). Fluctuations in the saving-income ratio: a problem in economic forecasting. Studies in Income and Wealth, 11, 371- 441.
McDonald, D. (1983). The determinants of saving behaviour in Latin America, Washington, DC. International Monetary Fund, Mimeo.
Newlove, G. (2008). The impact of the financial sector reforms on savings, investments, and growth of gross domestic product (GDP) in Ghana. International Business & Economics Research Journal 7(10).
Pant, P., & Kindness, D. (2021). What it means to have savings: savings means different things to different people. https://thebalance.com
Paleyo-Romero, P. (2020). Getting high on low interest rates: how falling interest rates have driven savings high. The View by Economic Research, https://www.allianz.com/content/dam/onemarketing/azcom/Allianz_com/economi-research/publications/specials/en/2020/20200129-HouseholdSavings.pdf.
Quartey, P. (2008). Financial sector development, savings mobilization, and poverty reduction in Ghana. In: Guha-Khasnobis, B., Mavrotas, G. (eds) Financial Development, Institutions, Growth and Poverty Reduction. Studies in Development Economics and Policy. Palgrave Macmillan, London, 87-119. https://doi.org/10.1057/9780230594029_5
Richert-Kazmierska, A. (2019). Life cycle theories of savings and consumption, in: Gu, D., Dupre, M. (eds) Encyclopedia of Gerontology and population aging. Spring, Cham. https://doi.org/10.1007/978319-69892-2_199-1
Sahoo, P., & Dash, RK (2013). Financial sector development and domestic savings in South Asia, Economic Modeling, 33, 388-397. https://doi.org/10.1016/j.econmod.2013.04.018
Santosh, K. D., & Lakshmi, K. (2018). Does inflation affect savings non-linearly? evidence from India. The Journal of Applied Economic Research. https://doi.org./10.1177/093801018786155
Smith, D. (2021, February 7th). Negative rates? No: the bank must think of when to raise. The Times.
https://www.thetimes.co.uk/article/negative-rates-no-the-bank-must-think-of-when-to-raise
Smyth, D. J. (1993). Toward a theory of saving J. H. Gapinski (ed.), the Economics of Saving.
Springer Science, Business Media New York.
Adeleye, N. (2018). [Cruncheconometrix]. Vector autoregressive (VAR) models (Eviews), Part 2. https://cruncheconometrix.com.ng
Adusei, M. (2015). Bank profitability: Insights from the rural banking industry in Ghana. Cogent Economics & Finance, 3(1). https://doi.org/10.1080/23322039.2015.1078270
Aizenman, J., Cheung, Y.W., & Ito, H. (2017). The interest rate effect on private saving: alternative perspectives. ADBI Working Paper 715. Tokyo: Asian Development Bank Institute. https://www.adb.org/publications/interest-rate-effect-private-savingalternative.
Alemayehu, G., & Haile. K. (2003). Aggregate saving behaviour in Africa: a review of the theory and the existing evidence with a new empirical results. Ethiopian Journal of Economics, 12(1),13-42.
Altaee, H. H.A., & Al-Jafari, M.K. (2019). The impact of saving and financial development on economic growth in Turkey, Asian Journal of Finance & Accounting, 11(2). https://doi.org/10.5296/ajfa.v11i2.15481
Ando, A., & Modigliani, F. (1963). The life-cycle hypothesis of saving: aggregate implications and tests. The American Economic Review, 53(1), 55-84.
Balassa, B. (1989). The effects of interest rates on savings in developing countries. Policy Planning and Research Working Papers 55.
Bayar, Y. (2014). Financial development and domestic savings in emerging Asian countries. Theoretical and Applied Economics, 21 (7), 55-66.
Bryman, A., & Cramer, D. (1997). Quantitative data analysis with SPSS for windows: a guide for social scientists. Rutledge, London.
Campbell, C.R., & Lovati, J.M. (1979). Inflation and personal saving: an update, Federal Reserve Bank of St. Louis Review, 61, 3-9.
Caminati, M. (1981). The theory of interest in the classical economists. Metreoeconomica, 33(1-2-3), 79-104. https://doi.org/10.1111/j.1467-999X.1981.tb00669.x
de Melo, J., & Tybout, J. (1986). The effects of financial liberalization on savings and investment in Uruguay. Economic Development and Cultural Change, 34, 561-88.
Dickey, D. A., & Fuller, W. A. (1979). Distribution of the estimators for autoregressive time series with a unit root. Journal of the American Statistical Association 74(366), 427 431.
Ewetan, O.O., Ike, D.N., & Urhie, E. (2015). Financial sector development and domestic savings in Nigeria: a bounds testing cointegration approach. International Journal of Research in Humanities and Social Studies, 2(2), 37-44.
Granger, C.W.J. (1969). Investigating causal relations by econometric models and cross spectral methods.” Econometrica 37(3), 424–438.
Griffin, K. (Ed). (1972). Financing development in Latin America. Journal of Latin American Studies, 4(7), 309-312. London, Macmillan, and Co. Ltd. https://doi.org/10.1017/S002216X00002121
Group Deputies, (1995). Group of ten: saving, investment, and real interest rates, a study for the ministers and governors, Rome.
Güngör, H., Çiftçioğlu, S., & Balcılar, M. (2014). Does financial development increase private savings? the case of Turkey. International Journal of Business and Social Science, 5(2), 36-47.
Gupta, K.L. (1984). Financial intermediation, interest rate, and the structure of savings: evidence from Asia. Journal of Economic Development, 9, 7-24
Hondroyiannis, G., Lolos, S., & Papapetrou, E. (2005). Financial markets and economic growth in Greece, 1986–1999. Journal of International Financial Markets, Institutions and Money, 15 (2), 173-188. https://doi.org/10.1016/j.intfin.2004.03.006
Horioka, C.Y., & Yin, T. (2010). A panel analysis of the determinants of household saving in the OECD countries: the substitutability of social Safety nets and credit availability. Institute of Social and Economic Research, Osaka University.
Hughes, T. (2016). Are deposits safe under negative interest rates? moody’s analytical risk perspective, The Convergence of Risk, Finance and Accounting 7.
Johansen, S. (1991). Estimation and hypothesis testing of cointegration vectors in gaussian vector autoregressive models. Econometrica, 59(6), 551-1580, 1551-1580. https://doi.org/10.2307/2938278
Juster, F.T., & Wachtel, P. (1972). A note on inflation and saving rate. Brookings Papers on Economic Activities, 765-778.
Keynes, J.M. (1936). The general theory of employment, interest, and money. International Relations and Security Network, Macmillan, London.
Kwakye, J.K. (2010). High interest rates in Ghana: a critical analysis. Institute of Economic Affairs, A Public Policy Institute.
Larbi, D.A. (2013). The long run determinants of private domestic savings in Ghana: a cointegration approach. Journal of Economics and Sustainable Development 4(4).
Levine, R. (1997). Financial development and economic growth: views and agenda. Journal of Economic Literature, 35, 688-726.
Modigliani, F. (1949). Fluctuations in the saving-income ratio: a problem in economic forecasting. Studies in Income and Wealth, 11, 371- 441.
McDonald, D. (1983). The determinants of saving behaviour in Latin America, Washington, DC. International Monetary Fund, Mimeo.
Newlove, G. (2008). The impact of the financial sector reforms on savings, investments, and growth of gross domestic product (GDP) in Ghana. International Business & Economics Research Journal 7(10).
Pant, P., & Kindness, D. (2021). What it means to have savings: savings means different things to different people. https://thebalance.com
Paleyo-Romero, P. (2020). Getting high on low interest rates: how falling interest rates have driven savings high. The View by Economic Research, https://www.allianz.com/content/dam/onemarketing/azcom/Allianz_com/economi-research/publications/specials/en/2020/20200129-HouseholdSavings.pdf.
Quartey, P. (2008). Financial sector development, savings mobilization, and poverty reduction in Ghana. In: Guha-Khasnobis, B., Mavrotas, G. (eds) Financial Development, Institutions, Growth and Poverty Reduction. Studies in Development Economics and Policy. Palgrave Macmillan, London, 87-119. https://doi.org/10.1057/9780230594029_5
Richert-Kazmierska, A. (2019). Life cycle theories of savings and consumption, in: Gu, D., Dupre, M. (eds) Encyclopedia of Gerontology and population aging. Spring, Cham. https://doi.org/10.1007/978319-69892-2_199-1
Sahoo, P., & Dash, RK (2013). Financial sector development and domestic savings in South Asia, Economic Modeling, 33, 388-397. https://doi.org/10.1016/j.econmod.2013.04.018
Santosh, K. D., & Lakshmi, K. (2018). Does inflation affect savings non-linearly? evidence from India. The Journal of Applied Economic Research. https://doi.org./10.1177/093801018786155
Smith, D. (2021, February 7th). Negative rates? No: the bank must think of when to raise. The Times.
https://www.thetimes.co.uk/article/negative-rates-no-the-bank-must-think-of-when-to-raise
Smyth, D. J. (1993). Toward a theory of saving J. H. Gapinski (ed.), the Economics of Saving.
Springer Science, Business Media New York.
Downloads
Published
2022-05-13
Issue
Section
Articles
License
Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License. (CC BY-NC-ND 3.0) (Since 2014)
How to Cite
PRIVATE SAVING IN GHANA: THE COMBINED EFFORTS OF FINANCIAL DEVELOPMENT, INTEREST RATES, AND INFLATION. (2022). Timisoara Journal of Economics and Business, 14(1), 23-38. https://www.tjeb.ro/index.php/tjeb/article/view/pdf
