The Determinants of Domestic Private Savings in Nigeria

Abstract

This study examined the determinants of private domestic savings in Nigeria (1980- 2015), using data obtained from CBN and IMF-IFS online. The econometric analytic tools used are, co integration test, vector error correction model, Granger causality test. In the model, domestic private savings (DPS) is a function of gross domestic product per capita (GDPPC), household consumption (HHC), nominal interest rate (INTRT) and domestic credit to private sector (DCPS%GDP). The study obtained the following results (i) Stable long run relationship was found to exist between the dependent and explanatory variables in the model. (ii) Interest rate has positive significant relationship with domestic private savings in the long run and insignificant influence in the short run in Nigeria within the period under review. (iii) Income has significant negative impact on domestic private savings in the long run and insignificant impact in the short run in Nigeria within the period under study. (iv) There is a unidirectional causality running from GDPPC, DCPS%GDP to DPS and bidirectional causality existing between HHC and DPS in Nigeria within the period under consideration. Based on the findings, the study recommends conscious policy aimed at reducing the cost of living of the people, so that the part of disposable income spent on social services will reduce thereby increasing domestic private savings. More so, there is need for the authorities to increase the volume of credit to the private sector and also create an investment friendly environment that will support effective and efficient use of the credit which will in turn increase income and then lead to increase in domestic private savings.