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Determinants of Domestic Saving in Ethiopia: an ARDL Bounds Testing Approach


The objective of this paper is to investigate the determinants of domestic saving in Ethiopia using time series annual data from 1970/71-2010/11. In this study, effort has been made to identify the long and short run determinants of domestic saving in Ethiopia using an ARDL bounds testing Approach and ECM to capture both the short run and long relationships. The estimated result revealed that the growth rate of income (gPCI), budget deficit ratio (BDR) and inflation rate (INF) were statistically significant short and long run determinants of domestic saving in Ethiopia. But, depositing interest rate (IR), current account deficit ratio (CADR) and financial depth (DFD) were found to be statistically insignificant determinants in the long run. However, in the short run, DFD and IR were found to have statistically significant meaning in explaining domestic savings in Ethiopia. The speed of adjustment has a value of 0.63768 with a negative sign, which shows the convergence of the saving model towards long run equilibrium. The overall findings of the study underline the importance of raising the level of income in a sustainable manner, minimizing the adverse impacts of budget deficit and inflation rate and creating a competitive environment in the financial sector.

Ethiopian Economics Association (EEA)
Primary Descriptors: 

Domestic saving

Secondary Descriptor: 

Capital Movement

Geographic Descriptors: 
Cataloge Date: 
Broad Subject heading: 
Saving and Investment
Call Number: 
330.963 PRO 2015
Serial Key Title: 
Proceedings of the Twelfth International Conference on the Ethiopian Economy
Publication catagory: 
Content type: 
Publication date: 
2015-06-01 00:00:00
Conference Place: 
EEA Conference Center
Place of publication: 
Addis Ababa, Ethiopia
Type of material: 
Current frequency: 
Conference date: 
July 16 to 19, 2014