DETERMINANTS OF FORMAL FINANCIAL SAVINGS IN NIGERIA. (1970 1990). AN EMPIRICAL ANALYSIS

DETERMINANTS OF FORMAL FINANCIAL SAVINGS IN NIGERIA. (1970 1990). AN EMPIRICAL ANALYSIS

Abstract:

Development economists hypothesize that savings is a key determinant of economic growth. These economists, however, have different opinions when they examine financial savings, the factor influencing the trend of financial savings, and the relation of savings to particular determinants. In fact, their opinions differ most when they seek to consider the most potent factors determining real financial savings per capita. The main objective of this work is to determine the major factors or variables determining formal-sector financial savings in Nigeria and relate the findings to what development economists have postulated on the issue of determinants of financial savings. Two multiple regression tests were run, using data from 1970-1990. The first uses simple time series data of real financial savings per capita as the dependent variable, and the second, a three year moving average of the real financial savings per capita as its dependent variable. Seven explanatory variables were tested on these dependent variables. In the first regression it was found out that the number of financial institutions per community (degree of penetration of financial institutions into the economy), the urbanization rate and the net foreign investment in the country are the most potent factors determining real financial savings in Nigeria. In the second regression, the net foreign investment and the number of financial institutions in the country proved to be the most potent factors. The conclusion to be drawn is that, in the Nigerian context, most people save because the opportunities to save are made available to them. Both regressions equally prove that the dependency ratio in Nigeria has the most retarding (negative) effects on real financial savings. The high rate of population growth tends to retard the ability of households to save- The other variables proved to be positively related to real financial savings but not very significantly viz, the real interest rates, and the export performance. The results generally meet conventional theory on the determinants of financial savings in developing countries.

DETERMINANTS OF FORMAL FINANCIAL SAVINGS IN NIGERIA. (1970 1990). AN EMPIRICAL ANALYSIS