Determinants of Household Saving in Dire Dawa City, Eastern Ethiopia

Meron Hailu

doi:10.7176/jesd/11-21-05

Abstract

Household saving is a crucial determinant of the supply of funds for investment. However, saving trend in Ethiopia particularly in the study area is very low and little is known empirically about its patterns and determinants. This study, therefore, was aimed at investigating the determinants of the saving behavior of households in Dire Dawa city, Eastern Ethiopia. Data were collected from four Kebeles and 122 sample households taken from the selected kebeles by using interview schedule. Descriptive statistics and Tobit regression model were used to analyze the data. The results showed that 70.5% of the entire sample households had savings during the survey time. The results of Tobit model revealed that annual income of household head education level, credit use of the household, annual expenditure of the household, self-employed, location of business area and the perception of interest rate had significant influence on the amount of household saving in the study area. And also 57% of the households used formal institution for saving. The findings suggest that saving of the households is largely determined by income level. It is therefore important to ensure the availability of credit service, create awareness and educate the households to enhance saving. Keywords : saving, household saving, Dire Dawa DOI: 10.7176/JESD/11-21-05 Publication date: November 30 th 2020

Highlights

Saving is a key macroeconomic variable, as it is a potential source of investment and economic growth
The results revealed that the mean monthly saving amount of the total sample household heads was found to be 968.83 birr with standard deviation of 01805.55
The precision of estimating the coefficients of variables is reduced by the existence of multicolliniarity between variables that is if the explanatory variables are highly correlated it is difficult to distinguish the effects of one single explanatory variable on the dependent variable (Maddala, 1992) and (Gujarati, 1998) has established a rule of thumb, if VIF of a variable exceeds 10, that variable is said to be highly collinear

Summary

Introduction

Saving is a key macroeconomic variable, as it is a potential source of investment and economic growth. Households are heterogeneous in terms of size, economic activity, income, net wealth and cultural background. This means that investigating households’ behavior at the aggregate level only by looking at the “average” household ignores many potentially important aspects. As many of the researchers indicate that the behavior of saving in Ethiopia has an impact in the economic growth of rural areas. This study shows rural farm households save in respective of their low economic status. Background and sampling methods Dire Dawa Administration (DDA) comprises Dire Dawa city and the surrounding rural areas. It is divided into nine urban kebeles and 21 rural kebeles. 122 respondents were selected randomly from four kebeles using probability proportional to size sampling method

Model specification

RESULTS AND DISCUSSION

Econometric Model Results

CONCLUSION