Abstract
This study examines the impact of the age dependency ratio on domestic savings rates. We test this issue for 16 African countries using annual panel data. The empirical analysis was conducted using the panel unit roots, panel cointegration and panel causality tests. The empirical findings indicate evidence of panel cointegration. Furthermore, results from panel causality analysis reveal that dependency ratio causes savings rate negatively. Overall, our findings support the view that changes in non-working population size are important in explaining the future path of domestic savings rates in Africa.
Highlights
International comparative analysis of the savings behavior over the last three decades has shown that the world has witnessed a marked divergence in saving rates
Given the fact that low domestic savings rates is a bottleneck to economic growth (Anoruo and Ahmad, 2001) and despite the economic reforms that many African countries attempted in the past (World Bank, 2002), these falling trends are not expected to improve in the near future, unless serious efforts are made to increase financial-sector outreach and create the conditions for proper financial intermediation
The life cycle model suggests that the age structure of the population has a significant impact on the saving rate and in particular that the dependency ratio has a negative impact on the savings rate
Summary
International comparative analysis of the savings behavior over the last three decades has shown that the world has witnessed a marked divergence in saving rates. Given the fact that low domestic savings rates is a bottleneck to economic growth (Anoruo and Ahmad, 2001) and despite the economic reforms that many African countries attempted in the past (World Bank, 2002), these falling trends are not expected to improve in the near future, unless serious efforts are made to increase financial-sector outreach and create the conditions for proper financial intermediation It has been reported by some economists that the rationale of Africans is altered by social constraints, which impede savings and investment trends (Mahieu, 1990; Hugon, 1993). The support to dependents is organized within families and implies great amounts of financial private transfers This analysis followed in this paper has certain novelties: First, it makes use of a new sample of African countries with respect to the dependency ratios and savings, while it makes use, for the first time in this literature, of the methodology of panel data to investigate the above relationship. Correlation, does not say anything about cointegration and causality and, leaves unsettled the debate concerning the short- and long-run effects of the age dependency rate on savings rate for African countries
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