Abstract
The study examines the determinants of savings in the SADC region, mainly focusing on the roles played by external financial flows and financial development in mobilising domestic savings utilising panel cointegration method and the Dynamic ordinary Least Squares (DOLS) approach from 1980 to 2009. Following the review of literature, the empirical model adopted established that there is a long-run relationship between the variables of interest. The results indicate that income, proxied with GDP, financial sector development and foreign capital have a positive relationship with savings. The results also suggest that financial sector development has played a very important role in influencing savings in the region. However on the other hand the results indicate that interest rate and dependency ratio have influenced savings negatively. The empirical results support the hypothesis that foreign savings bridges the gap between domestic demand and supply of finance in the SADC countries. There is need to attract more foreign capital given that it compliments domestic savings. At the same time policies aimed at financial deepening should still be pursued to further deepen the financial system in the SADC countries to further enhance savings.
Highlights
AND BACKGROUNDE stablishing the factors that determine the accumulation of savings is an area which has attracted attention at both the academic and policy discourse
The study focused on analysing the determinants of savings in the SADC region focusing mostly on the role which foreign capital plays given that there are different views regarding its impact on domestic savings
Having reviewed a number of theoretical and empirical literature, the study adopted the permanent income/ life cycle hypothesis to analyse the determinants of savings in the SADC region
Summary
E stablishing the factors that determine the accumulation of savings is an area which has attracted attention at both the academic and policy discourse. This is acceptable given the importance of savings to a country. There are additional studies which indicate that when a country has a high level of savings it will help in reducing the current account deficit which is a common scenario in SADC countries. Luüs (2007) argue that in the event that there are not enough savings, the country is likely to further widen the current account deficit or it may fail to maximize on investments in the domestic economy. Lack of appropriate financial systems which are able to efficiently pool savings of households to make them available to borrowers has been suggested to be one of the contributing factors Liu and Woo, 1994; Granville and Mallick, 2004; Odhiambo, 2008; Ang, 2010)
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