Abstract
Purpose. Despite the increasing trend of private savings in Nigeria, the country is still characterised by low investment and output growth, thus, suggesting that the average saving rate is still far from being impressive. This study investigates the determinants of private savings in Nigeria. Methodology. Autoregressive Distributed Lag (ARDL) Model using annual time series data from 1981 to 2016 within the theoretical framework derived from the life-cycle hypothesis is employed in this study. The key variables under investigation are private savings, income, dependency ratio, real interest rate, social security payment, financial development and macroeconomic stability. The data used for analysis are sourced from Central Bank of Nigeria Statistical Bulletin (2016) and World Development Indicator (2016). Findings. The results show that lifetime income and social security payment have significant positive relationship with private saving in the long-run, while adult dependency has significant negative relationship. In the short-run, adult dependency and social security payment have significant positive relationship with private savings. In addition, the result shows that 62% of deviation from the long-run equilibrium level of private savings is annually corrected for by the model estimated. Originality. This research investigates both the long-run and short-run effects of the various determinants of private savings in Nigeria. Thus, the study can serve as eye opener to the important variables that can improve the level of private savings in Nigeria.
Highlights
Savings remain one of the most important economic activity for mobilising funds for investment purposes; it is recognised as a catalyst of economic growth
This prompted us to estimate both long and short-run relationship for the model specified in equation (2)
This study seeks to underscore the determinants of private savings in Nigeria during 1981-2016
Summary
Savings remain one of the most important economic activity for mobilising funds for investment purposes; it is recognised as a catalyst of economic growth. An adequate supply of domestic savings remains a core national policy objective, mainly due to its direct impact on growth process as well as its role as domestic investment stimulants. Ogbokor and Samahiya (2014) emphasised that higher savings rate is crucial for long term investment process, which in turn facilitates an increase in employment rate and economic growth. The position of the literature (for example Ogbokor and Samahiya, 2014) on the positive influence of savings on investment and subsequently growth and development lend credence to the importance of savings. Despite the increasing trend of private savings in Nigeria, the country is still characterised by low investment and output growth, suggesting that the average saving rate ratio is still far from being impressive. There is lack of incentives for a good domestic savings culture in Nigeria mainly due to poor understanding of savings determinants
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