Determinants of Gross Domestic Saving in Ethiopia: a Time Series Analysis

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Determinants of Gross Domestic Saving in Ethiopia: a time series analysis

Kidane Badeg

Contact:

Kidane Badeg

MoFED

P.o.Box 1905, Addis Ababa , Ethiopia

Email: kbadeg@mofed.gov.et

Abstract

The study conduct a time series analysis of the determinants of gross domestic saving in Ethiopia using co-integration and error correction econometric modeling(ECM), and employed data for the period of 1971-2009 collected from National bank of Ethiopia (NBE), MOFED, CSA and world bank on annual base. The study revealed that GPCI, DR, INF, GTR and GGDS1-t significant influence on GDS in cointegration model. Further more GPC, INF, GTR and GGDS1-t are also significant in ECM model while PCI, RIR and GM2 showed insignificant coefficient in both cointegration and ECM model.

Table Of Contents

Content Page Abstract i
CHAPTER ONE
1. INTRODUCTION1
1.1 Background of the Study 1
CHAPTER TWO
2. Literature Review 2
2.1 Roles of Saving: Theory and Evidence2
2.2 Determinants of Saving: Theory and Evidence 3
2.2.1 Theoretical Determinants of saving3
2.3 Empirical Determinants of Saving5
CHAPTER THREE
3. Data and Methodology 7
3.1 Data 7
3.2 Model Specification7
CHAPTER FOUR
4. Estimation procedure and Analysis Empirical Result 8
4.1 Estimation Procedure 8
4.2 Analysis of Empirical Result 11
CHAPTER FIVE
5 Conclusion and Recommendations 13
5.1 Conclusion13
5.2 Recommendation 13
Reference……………………………………………………………………………………………………14 Appendix……………………………………………………………………………………………………..15 CHAPTER ONE

1 Introduction

1. Background Of The Study

Economic literatures on economic growth models such as Harrod Domar and Solow growth model suggested that saving is an essential factor to the working of any economic growth. As capital formation is an important factor in economic growth, country that was able to accumulate high level of investment achieved faster rate of economic growth and development (Shini and Kadhikwa, 1999). Savings determine economic growth through facilitating financial opportunities for investment. Increased investment increases the productive capacity of an economy. Adding to the stock of capital goods increase the nation’s potential out put and promotes economic growth in the long run. That is, for continues growth and future prosperity of a country a high level of investment is essential (Ayele, 2006).

The necessary resources for investment are obtained through cumulative savings of income. It fallows that investment also depends upon saving and saving required sacrifice of current consumption to make available resources to finance investment. Thus, to finance investment required for economic growth, a nation needs to generate sufficient domestic saving or it should borrow abroad and/or develops FDI (Shini and Kadhikwa 1999).

However, developing countries still show low performance to attract FDI due to economic and political uncertainly. Further more, the flow of foreign direct investment (FDI) attracted largely by natural resource endowment especially oil and minerals which are scarce in Ethiopia (Getnet and Hirut, 2006). The second alternative to finance domestic investment is through official development assistances (OAD) which are mostly tied up with conditionalities. The main problem of these conditionalities is that donors forced the recipient government to undertake political and economic policies reform which may not accepted by the recipient government (Soubbifina, 2004). Beyond this foreign borrowing may cause exchange rate problem in the long run.

However increased saving does not always corresponding to increase investment, if savings are not deposited in to financial intermediaries like banks there is no chance for those savings to be...
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