DETERMINANTS OF HOUSEHOLD SAVINGS IN NIGERIA.
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DETERMINANTS OF HOUSEHOLD SAVINGS IN NIGERIA.
Chapter one
INTRODUCTION
1.1 Statement Of The Problem
Saving is one of the most significant sorts of household economic actions, regardless of where you live. To that aim, an adequate supply of domestic and/or household saving remains a key national policy goal, owing to both its direct impact on the growth process and its position as a domestic investment stimulator.
Rehman, Bashir, and Faridi (2011), as well as Ogbokor and Samahiya (2014), reaffirm the importance of saving in the economy by emphasising that a higher savings rate is critical for long-term investment, which in turn manifests into industrialization, which generates employment opportunities and economic development.
Given the increased integration of foreign financing, for example, substantial domestic saving can help to maintain macroeconomic stability internally.
This postulation of the positive influence of savings on investment and, as a result, growth and development suggests that savings are important for growth and development anyplace in the globe.
Ironically, economists have recently expressed worry over the poor record of household savings in most African countries in comparison to other regions of the world.
Despite the increasing trend of national domestic savings in Nigeria, the country continues to have low investment and output growth, implying that its average saving rate ratio is far from outstanding.
Iyoha (1998) reaffirms this weak saving-investment-output link, attributing the mid-1980s negative production growth rate to a variety of variables, the most important of which were a fall in investment and savings.
In a similar vein, Nnanna (2003) said that the Nigerian economy’s underdevelopment is the result of her low savings and investment culture. Essentially, there is a lack of incentives for household savings in Nigeria, owing to:
(i) a lack or poor understanding of household savings determinants; and
(ii) high saving mobilisation costs in terms of transaction costs as well as the cost of overcoming information asymmetry in order to persuade savers to postpone their consumption to a later date.
While appreciating the huge amount of empirical literature that has shed light on many elements of saving behaviour, it is worth highlighting that critical concerns about factors with the potential to improve household savings performance remain unresolved.
The issues addressed in this study are: (i) the effectiveness of higher income rates as a stimulus for raising household saving rates in Nigeria; (ii) the effectiveness of financial development in enhancing household savings behaviour in Nigeria; and whether monetary policy plays a role in increasing household savings in Nigeria.
1.2 Objective of the Study
To address the aforementioned research concerns, the focus of this current study is to identify the likely causes of household savings in Nigeria. To meet this broad goal, the study will specifically:
1. Investigate the effects of increased income growth in increasing household savings rates in Nigeria.
2. Investigate the impact of financial development in improving household savings behaviour in Nigeria.
3. Investigate the influence of monetary policy in growing household savings in Nigeria.
1.3Justification for the Study
Although there are several country-specific research concentrating on saving and the factors that influence saving behaviour in Nigeria. However, the majority of these investigations, including Akpan (2011), Obayelu (2012), Abiara and Arosanyin (2014), and Osondu et al. (2015), are micro-based in nature.
The current study, however, will broaden the frontier of knowledge on the topic of household savings, particularly given the scarcity of macro-level empirical evidence on the determinants of household saving in emerging economies such as Nigeria.
Essentially, the study will depart from the traditional disaggregated mode of assessing saving behaviour in order to provide a useful empirical framework for an effective and smooth transition of national savings to investment and sustainable development.
As a result, if the outcome of each tool (i.e. the response of household saving to national income level, financial development, and monetary policy) is known based on the empirical evidence provided by this study, policymakers will be able to better understand the effectiveness of each of these instruments as a stimulant of household saving in the Nigerian economy.
1.4 Scope of the Study
The current study narrows its examination of household saving determinants to Nigeria as a case study. It examines the reaction of Nigeria’s national saving growth rate to a variety of potential saving factors using annual time series data from 1970 to 2017.
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