Department of economics determinants of private domestic savings in Ghana
Loading...
Date
2008-10-21
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
Abstract
The quest of Ghana as a Less Developed Country to obtain middle income status requires sustainable growth and development. Growth and Development of Ghana however depends on the ability of the country to mobilize domestic resources for capital formation. The risks of ‘foreign exchange and balance of payments crises make it imperative for enough domestic resources to be mobilized for growth and development. Capital formation requires sustainable domestic savings especially from the private sector.
This research has sought to explore the determinants of private domestic savings as a basis for capital formation needed for Ghana’s accelerated growth and development. The research has mostly explored economic determinants of private domestic financial savings in Ghana.
Econometric tools such as the test for unit root have been applied in the analysis of the determinants and the Johansen (1988) cointegration procedure have mainly been followed in exploring the long run relationships among the variables. The Engle and Granger theorem is invoked for the Error Correction representation where the error correction term indicates the speed of adjustment back to long run equilibrium in case of shocks to the system.
Long run results indicate that financial liberalization, growth and government budget deficits impact positively on the private saving behaviour in Ghana. The positive coefficient of the government budget deficit notwithstanding, the Ricardian Equivalence Proposition is rejected in the Ghanaian case. In the long run, liberalization exerts the most significant impact on private savings in Ghana.
The coefficient of the dependent population variable confirms the Life Cycle Hypothesis in the Ghanaian case though not statistically significant in the short run. Macroeconomic performance of Ghana over the period 1970-2002 has largely not improved our domestic savings mobilization as is indicated by the negative and significant long run signs of the Inflation, Real Interest Rate and Exchange Rate variables.
The significant inertia exhibited by most short run saving behaviours was confirmed in the research as most of the variables failed to show robustness or significance.
Growth showed positive significant result even in the short run though less robust. The most interesting result however is that of the per capita income variable which showed a significant rejection of the Keynesian Absolute Income Hypothesis. Significant negative coefficient was reported for both long and short term.
The direction of causality was shown to be from growth to saving in the Ghanaian case as was reported by the Granger Causality Test.
The model suffered no structural breaks and hence was stable for the study period. The chow test for structural breaks indicates this and is confirmed by the plots of the CUSUM and CUSUMQ.
Description
A thesis submitted to the College of Arts and Social Sciences in partial fulfilment of the requirements for the degree of MBA, 2008