1

TITLE PAGE

FACTORS THAT REDUCE SAVINGS IN NIGERIA

(1980-2010)

A PROJECT SUBMITTED TO THE DEPARTMENT

OF ECONOMICS IN PARTIAL FULFILLMENT OF
THE REQUIREMENT FOR THE BACHELOR OF
SCIENCE (B.SC)

DEGREE IN ECONOMICS
BY
ETTU. IME. INIUBONG
EC/2008/643

DEPARTMENT OF ECONOMICS

FACULTY OF MANAGEMENT AND SOCIAL

SCIENCE CARITAS UNIVERSITY AMORJI –NIKE,
ENUGU, ENUGU STATE.

AUGUST 2012.
 2

APPROVAL PAGE

This project has been supervised and approved as having certified

the requirement for the award of Bachelor of Science (B.Sc) in the

Department of Economics, Caritas University, Amorji –Nike Enugu.

………………………….. ……………………………..

Mr. R.O. Ojike Barr.P.C Onwudinjo

Project Supervisor Head of Department

…………………………… ………………………………

Date Date

…………………………. …………………………….

Prof. C.C Umeh External Examiner

Dean, Faculty of management

And Social Science

……………………………. ……………………………..

Date Date
 3

DEDICATION

This research project is dedicated to the Almighty God who has

been my only source of strength and inspiration.

I also dedicate this work to my parents Mr. and Mrs. Ime akpan

having sacrificed a lot to give me the best in life and for their

encouragement, prayers and love during my years of study. It‟s

also dedicated to my siblings: Abasifreke Anniediong and wisdom.

 4

ACKNOWLEDGEMENT

After this tireless and fruitful journal, which came to reality with
the support I received from a number of people. My
acknowledgement first goes to my supervisor, Mr. R.O Ojike for his
support, patience and direction. My warm appreciation and
gratitude also goes to all the lecturers in economics department:
Barr. Onwudinjo (HOD), Prof Onah, Prof Udabah, Dr.C.C. Umeadi,

With profound gratitude for their consistent advice, support and

prayers.

I also wish to acknowledgment my friends and course mates.

Finally, I will whole heartedly thank my beloved parents for their

moral, material and financial support and those that have
contributed to the successful completion of this academic journey,
may God reward and bless you all.
 5

ABSTRACT

This study investigates the core leading factors that reduce savings
in Nigeria between 1980 -2010 using ordinary Least Square (OLS)
econometric framework, which will enable us proffer solutions for
the improvement of savings in the economy, which is also an
important component for economic development in any country.
Base on data collected, it is discovered that savings output in
Nigeria during the period was unsatisfactory but was later
discovered as a necessary factor for economic development and
growth. This research shows the significance of savings which is
achieved when saving habits is greatly considered by public private
and government. The empirical results show a negative influence of
trade openness (TDO) on aggregate savings. The work therefore
submits that effort should be geared towards improving export
capacity by improving productivity in industrial sector, which
provide employment and increase per capital income as a bid to
accelerate savings. And since interest rate signals a positive
influence on savings in Nigeria, there should also be an intensified
impact on real rates, spread and financial liberalization and or
financial developing in Nigeria.
 6

TABLE OF CONTENT

Title page - - -- ----- - - - -i

Approval page - - - - - - - - - -ii

Dedication - - - - - - - - - -iii
Acknowledgment - - - - - - - - -iv
Abstract - - - - - - - - - - -v
Table of content - - - - - - - - -vi-x
CHAPTER ONE
1.0 Introduction
1.1 Background of the study - - - - - - 1
1.2 Statement of the problem - - - -- - 6
1.3 Objectives of the study - - - - - - 8
1.4 Statement of Hypothesis - -- - - - - -8
1.5 significance of the study - - - - - - -8
1.6 Scope and limitation of the study - - - - -9
CHAPTER TWO
2.1 Theoretical literature - - - - - - 10
2.1.1 Development of saving in Nigeria - - - - 10
2.1.2 Theoretical Review - - - - - - - 13
2.1.30 Determinant of savings - - - -- - 19
2.1.3.1 Income - - - - - - - - -19
2.1.3.2 Wealth - - - - - - - - -20

2.1.3.3 Inflation - - - - - - - - 20
 7

2.1.3.4 Foreign Savings - - - - - -21

2.1.3.5 Demographic Variables - - - -22
2.1.3.6 Growth = - - - -- - - - -22
2.1.3.7 Financial Development - - - - - -23
2.1.3.8. Interest Rate - - - - -- - -24
2.1.3.9Urbanization - - - -- -- -- -25
2.1.4 Conclusion - --- - - - -- - - 25
2.2 Empirical Review - - - - - -- -26

2.3 Limitations of the Precious Studies - - - - -26

CHAPTER FOUR
4.0 Presentation of Model Result - - - - - -38
4.1 Result Summary - - - - ---- - - -38
4.2 Economic Interpretation of result - - - - -38
4.2.1 Real Gross Domestic Product - - - - -39
4.2.2 Trade Openness - - - - - - - 39
4.2.3 Interest Rate - - - - - - -39
4.2.4 Net Capital Inflow - - - - - - - -39
4.3 Evaluation Based on Economic Criteria - - - -40
4.4 Statement Criteria (First Order Test) - - - -- 40
4.4.1. Coefficient of determination (R2) - - - 40
4.4.2 The T- Test - - - - - -- - -40

4.5 Econometric Criteria (Second Order Test) - - - 40

4.51 Normality Test - - - - - - -- - 42
4.5.2 Test for Autocorrelation - - - - - - 42
4.5.3 Test for Heteroscedasticity - - - - - -43
 8

4.5.4 Test for Multicolliearity - - -- - - - -45

CHAPTER FIVE
5.0 SUMMARY, CONCLUSION AND POLICY RECOMMENDATION
5.1 Summary of Findings - - - - - -- - 46
5.2Conclusion - --- - - - - -- - 47
5.3 Plock Recommendations - - - - - 47
Bibliography - - - - - - - - -49
Appendix - - - ----- - - - - - -52
 9

CHAPTER ONE
1.0 INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Financial institution, market, regulator and instrument all

comprises a set of complex and closely interconnected financial

system, proving financial services in an economy, such services

includes mobilization and allocation of resources, distribution of

investment funds among firms, financial intermediation and foreign

exchange transactions.

The Nigeria financial system can be categorized into two via: the

formal or organized and informal or unorganized financial system,

the banks and non banks financial institutions make up the

organized financial system while the unorganized sector comprises

of indigenous bankers local money lenders‟ (ISUSU), shop-keepers

or traders, merchants, landlords, saving associations, friends and

relatives etc. the system is poorly developed, limited economics

information, defective system of according are not integrated into

the formal financial system, but very important to the Nigerian

financial system. Capital formations, buying and selling of bonds

and securities, creation of new assets and liabilities, executing

monetary and credit policies of the central bank etc.

 10

Are the roles and functions of financial system geared towards

economic development of an economy? Patriotic researchers and

policy makers have observed a declining savings rate in Nigeria over

the past decades; this is due to the critical importance of saving for

the maintenance of strong and sustainable growth in the world

economy particularly in Nigeria.

A sound, healthy and reliable financial system relates to savings

mobilization and efficient financial intermediation roles:

First, reduces hoarding and help spread the risk between

household and firms.

Second, lowers interest rates thereby bringing about stability in

capital market.

Third, they create liquidity in the economy by borrowing short-term

and lending long-term.

Fourth, disseminate information between ultimate lenders and

ultimate borrowers thereby mobilizing savings from surplus units

and channeling them to deficit units through the help of financial

techniques, instruments and institutions. Fifth the intermediaries

promote development investment.

 11

The Nigerian financial system comprise the regulatory /supervisory

authorities, bank and non- bank financial institutions. As at the

end of 2007, the system comprised of the Regulatory/ Supervisory

authority, the Central Bank of Nigeria (CBN), the Nigerian Deposit

Insurance Corporation (NDIC), the Securities and Exchange

Commission (ESC), the national Insurance Comedienne (NAICOM),

the National Pension Commission (NPC), and the Federal Mortgage

Bank of Nigeria (FMBN).the CBN is the principal regulate and

supervisor in the money market, consisting of a Deposit Money

Banks (DMBs), Discount Houses, the Peoples Bank of Nigeria and

Community Banks.

The CBN exclusively regulates the activities of finance Companies

and promotes the establishment of specialized or development

financial institutions. The SEC is the apex regulatory/ supervisory

authority in the capital market. The Nigerian Stock Exchange (NSE)

is a self-regulatory or user-regulatory institution. The issuing

Houses, Registrar and stock brokers, who also interact with the

money market, complex the chain in the capital. The Federal

Ministry of Finance, together with the CBN constitutes the

monetary authorities and share control over Bureau de change. The

NAICOM is the regulatory authority in the insurance industry, while

 12

the FMBN regulates mortgage finance activities in Nigeria. Saving is

a sacrifice of current consumption that provides for the

accumulations of capital, which in term provides additional output

that can potential be used for consumption in the future

(Gersovitz1988). In other words, savings is the difference between

current earnings and consumption. It has also been defined as

“deferred consumption” or part of income, which is not spent.

Savings is described as a financial assets accumulated by the

public- both government and private agents in the organized

financial system. To expand financial savings involves shifting of

funds from the personal and household sector to the business or

corporate sector which in turn, leads to greater investment, income

growth, employment and capital formation: which cannot be

achieved without increasing the rate of savings, Nigeria‟s saving

still falls below the requirements of its financial system due to low

per capital income, under- investment in productive instruments,

and investment in unproductive channels, e.g. gold, jewelry, income

inequalities and demonstration effect Etc. to remedy this

problems depend on the level of development of the financial sector

mentioned above as well as the savings habit of the citizenry. The

availability of investible funds can be a starting point for all

 13

investments in the economy, which will eventually translate to

economic growth and development (Uremadu, 2006). The

relationship among saving, investment and growth has historically

been very close; hence, the unsatisfactory growth performance of

several developing countries. Example: Nigeria has been attributed

to poor saving and investment. This poor growth performance has

generally led to a dramatic decline in investment. Domestic saving

rates have not fared better, thus worsening the already uncertain

balance of payments position (Chete, 1999). The role of savings in

the economic growth of any country cannot be overemphasized.

Conceptually, savings represents that part of income not spent on

current consumption. Instructions in financial sector like deposit

money banks (DMBs)/commercial banks mobilize savings in a

economy, the deposit rate must be relatively high and inflation rate

stabilized to ensured a high positive real interest rate, which

motivates investors to save from their disposable income. In Nigeria

Nnann, Odoko and Englama (2004) are of the view that the level of

funds mobilization by financial institutions are quite low due to a

number of reasons, ranging from low savings deposits rates of the

poor banking habit or culture of the people.

 14

According to them, another impediment to funds mobilization is the

attitudes of banks to small savers. Another Limitation to savings

mobilization is the fact that the concentration of banks and their

offices are biased in favor of urban areas. Among the reasons for

this, is the fact that the established banks under- rate the volume

of saving to be mobilized and channeled into productive investment

in the rural areas. It is often argued that since the rural economy

operates at a near subsistence level, there is very little that can be

squeezed out of income and consumption. Because of this, it has

not been realized that large volume of idle funds, though in small

units per individual exist in the rural areas. In Nigeria, there is

basically lack of incentives to savings which had adversely affects

savings. Some of these factors include; poor banking habits,

attitudes of banks to small savers, poor orientation, unemployment,

instability in the political system, corrupt taxation system,

instability in the banking system, etc. one of the economic growth

and development in Nigeria.

1.2 STATEMENT OF THE PROBLEM

In Nigeria, there is lasting need of further efforts especially in

mobilizing small savings in both urban and rural areas, and the

process of financial intermediation itself, knowing fully well the

 15

saving culture in Nigeria is very poor relative to other developing

economics (Uremadu, 2006). In this respect, Commercial banks in

performing their roles, was found to have potential scope and

prospects for mobilizing financial resource and allocating them to

investment. But given the problems inherent in the formal sector,

the informal savings associations, if properly developed would not

only facilitate the financing of economics development but would

also contribute to the development of incomes, and that

necessitates the need to put in place a coherent economics policy

that will be capable of providing the much needed enabling

environment and also there is an urgent need to encourage

Nigerians to change their current attitude towards savings, thereby

placing the right saving culture by institutions and regulatory

agents who influence the decisions of households, firms and

government.

As pointed out earlier, since national policy is it macroeconomic or

microcosmic generates variables which could influence the

propensity of economics and financial actors to save. This research

work could attempt to examine from policy perspectives, the

magnitude and direction of such variables as: interest rate, income,

 16

growth, urbanization, foreign (aid) sector, fiscal policy etc, on

savings in Nigeria.

Therefore, this research question will try and answer the following:

1. What are the factors that reduce savings in Nigeria?

2. What impact does factors reducing saving have on aggregate

savings in Nigeria?

1.3 OBJECTIVES OF THE STUDY: In the light of the above

problems, the objectives of this research work include:-

* To ascertain those factors that reduces savings in Nigeria.

To determine the impact of the factors that reduces saving on

aggregate savings in Nigeria.

1.4 STATEMENT OF THE HYPOTHESIS

The hypotheses to be tested in this research work are:

a. Ho; the factors that reduce saving has no significant impact on

aggregate savings in Nigeria.

b. H1; the factors that reduces saving has a significant impact on

aggregate savings in Nigeria.

 17

1.5 SIGNIFICANCE OF THE STUDY

This research work will be of immense help to [policy formulators

particularly those involved in the development of the Nigerian

economic agenda. It will help them in choosing the appropriate

policy in the macroeconomic policy management, particularly those

affecting saving in Nigeria. Also, through the findings and

suggestions of this research project work, a greater awareness will

be generated in the financial arena or sectors so as to appreciate

the effects being carried out by the federal; government of Nigeria

through the Central Bank of Nigeria and Federal Ministry of

Financial in improving the policies affecting positive saving in

recent years. Finally, this study will assists in a modest way to

increasing student‟s knowledge on the practical and real- life

situation of the theories they learn in the classroom.

1.6 SCOPE AND LIMITATIONS OF STUDY

The scope of this study is to estimate and evaluate the factors that

reduce savings in Nigeria (1980-2010).

The Limitations are constrained to lack of fund, human error and

limited time frame, which imposed difficulties when serious attempt

to effect a general in – depth towards the study of the factors that

reduce savings in Nigeria.

 18

CHAPTER TWO

LITERATURE REVIEW

2.1 THEORETICAL LITERATURE

2.1. 1 DEVELOPMENT OF SAVING IN NIGERIA

Banks incur some costs while mobilizing funds from the surplus

units of the economy mainly in interest payments on deposit

accounts. In order to recover the cost of deposit mobilization and

order operating overheads, higher interest rates are charged by

banks.

Administratively, the central bank determines the interest rates

subsequent to the deregulation of the banking sector. Both the

deposit and lending rates were fixed by the CBN on the basis of

policy decisions. At that time, the major goals were socially

optimum resource allocation, promotion of orderly growth of the

financial market, as well as reduction of both inflation and the

internal debt service burden on the government. During the period

197 to 1985, the rates were unable to keep pace wit prevailing

inflation rate, resulting in negative real interest rates.

 19

Moreover, the performance of the preferred sectors of the economy

was below expectation, thus, leading to the deregulation of the

interest rate in August 1987 to a market –based system. This

enable banks to determine their deposit and leading rates according

to the market conditions through negotiations with their customers.

However, the Minimum Rediscount Rate (MRR) which is the Central

Bank‟s nominal continued to be determined by the CBN. The Lack

of responsiveness of the structures of deposit and lending rates to

market fundamentals makes the interest rate inefficient. The wide

divergence between the deposit and lending rates (interest rate

spread) was an obstacle to economic growth and development of the

Nigerian economy. Between 1980 and 1984, interest rate

differentials averaged 3.9%, even though this was reasonable within

the accepted limit, the spread widened between 1985 and 1989,

averaging 4.3% per annum. This impacted negatively on the

amount of loan- able funds available to the private sector for

investment.

The interest differential further widened to an average of 7.95

between 1990 and 1994. Thereafter, the yearly interest rate spread

maintained an upward trend, rising from 8.2% in 1995 to 24.6% in

2002, before declining to 15.7% in 2005. The widening gap between

 20

the deposit and lending rates reflects the prevailing inefficiencies in

the Nigerian banking system and has deterred potential investors

from borrowing, and thus, lowered the level of investment in the

economy. This use of interest rate spread has however been

criticized given that higher levels of interest rates are usually

associated with higher inflation rates, ad therefore a higher cost of

holding money. As a result of these disadvantages of interest rate

spread, net interest margin has been proposed as a better

alternative. Net interest margin is equal to total interest revenues

minus total interest expenditure divide by the value of assets.

Higher values of net interest rate margin indicate a higher spread

on deposit and lending rates and therefore lower efficiency.

The interest rate figures in Nigeria between 1870 and 2007 reveals

that the nominal interest rate was institutionally determined by the

monetary authorities throughout the 1970s and the first half of the

1980s. however, with the advent of the structural Adjustment

Programme (SAP) in the mid- 1980s which brought with it a rash of

financial sector reforms, Nigeria abandoned its fixed interest rate

regime that saw nominal interest treats rising from 9.3% in 1985 to

26.8% in 1989, and reaching a peak of 19.8% in 1992. The figure

 21

has since hovered between 13.5% and 2.4% and finally stood at

16.5% in 2007.

The real interest rate figure presents an interesting picture.

Between 1970 and 2007, the figure was negative 20 times attaining

positive figures on 18 occasions. The fixed interest rate regime of

the 1970s and early 1980s on doubt contributed to this negative

trend by fixing the interest rate at artificially low levels. For

instance, in the first two decades (1970 to 1989) when the fixed

regime dominated, real interest was negative 14 times and positive

only 6 times. However, in the last two decades (1990 to 2007), when

market forces took over, the real interest rate was negative on only

6 occasions. The inflation rate also played a very important role in

making the real interest rate negative for most of the period. During

the period when the real interest rate was negative it usually

coincides with those of double-digit inflation rates.

 22

2.1.2 THEORETICAL REVIEW

Saving literature can be based on two major hypotheses. Following

the pioneering work of Keynes which defines savings as a linear

function of income, the first major breakthrough in savings

literature is the permanent income hypothesis of Friedman. This

hypothesis differentiates permanent and transitory components of

income as determinants of savings. Permanent income is defined in

terms of the longtime income expectation over a planning period

and a steady rate of consumption maintained over lifetime given the

present level of wealth. Transitory income is the difference between

actual and permanent income and since individuals are assumed

not to consume out of this income category, marginal propensity to

save on transitory income will be unity. Empirical tests of the

permanent income hypothesis are mainly concerned with the effect

of initial wealth on savings as well as the marginal; propensities to

save out of permanent and transitory components of income. The

second major contribution to savings literature comes from Ando

and Modigliani‟s life cycle hypothesis, whose basic assumption is

that individuals spread their lifetime consumption evenly over their

lives by accumulating savings during earning years and marinating

consumption levels during retirements. Tests of the life cycle

 23

hypothesis are therefore mainly concerned with the effect of

demographic variables such as age groups, birth rates, and

describe savings during working life and disc-saving during

retirement are financial variables such as interest rates, inflation

rates, available financial instruments, and initial wealth levels

which affect the inter- temporal consumption decisions of

households. Saving behavior is seen to differ based on economic

advancement of a nation: „

First, at macroeconomic level distribution of aggregate saving is

attainable because savings and growth are key aspect of developed

nations, which in the long run promote investment leading to

capital formation and economic development and growth is

achieved

Secondly, economic development and growth are delayed due to

short-comings experienced in saving over decades, resulting either

from lack of government policy or unwise polices.

Third, the demographic structures of developing nations are mostly

involved in agriculture and proceeds from this sector are much

more uncertain due to large and poor households at the

microeconomic level. Also distribution of aggregate saving is likely

impossible.
 24

Lastly, saving is even more difficult to measure in developing

economies than in advanced economics, whether at the household

level or as a macroeconomic aggregate. Given the above, Deaton

(1989) modification in the life- cycle theory model in which

households cannot borrow but could accumulate assets as a

bumper stock to project consumption when incomes are low. Those

households that consume as often as they save cannot accumulate

assets over a long period of time and have no average, very small

asset holdings. However, their income Consumption is markedly

smoother than their income. That is, a household that consume

much of their income do not accumulate assets.

The modification of the life-cycle theory from the standard model in

four important respects as regards household saving behavior in

developing countries. First household in developing countries tend

to be large than those in developed ones, and there is a greater

tendency for several generations to live together. Such a household

has no need for retirement saving because resources are shared

between workers and dependents, and ownership is passed from

parents to children. This kind of household can internalize many of

the insurance activities that would otherwise require saving.

Transfers within the household can insure individuals against

 25

health risk and old age by proving effective annuities, and the close

relationship among the individuals concerned may mean not only

that moral hazard issues are less severe than in a more

individualistic society, but also that the quality of the protection is

very high.

Second, income derived from agriculture is naturally uncertain, an

uncertainly that spreads from agriculture to related occupations

and affects most of the population in predominantly agricultural

economics. Uncertainty at low income poses a real threat to

consumption levels, a treat that is likely to put forth a powerful

influence on the way in which income is saved and spent. The

poorer consumers are the more risk averse, they are generally

supposed to be, with declining risk aversion having important

implications for the shape of the consumption functions (Leland,

1968; Zeldes, 1989 and Kimball,1990). The standard model in

which consumption equal permanent income cannot be derived

from utility maximization in such a context. The third divergence

from the standard model is the assumption that borrowing is not

permitted. This is an extreme simplifying assumption, but more

appropriate than it‟s opposite that households are free to borrow

and lend at a fixed real interest rate. Borrowing constraints may be

 26

serious because in financially repressed economies, there may be

no credit available to non- favored borrowers. Even where there are

financial intermediaries, they may be unwilling to lend for

consumption purpose to individuals who have no collateral or to

lend across agricultural seasons rather than within them.

The fourth distinction between household saving in developed and

developing countries is a consequence of the previous three. In the

model developed here, saving provides a buffer between uncertain

and unpredictable income and an already low level of consumption.

Saving here is inter-temporal smoothing saving, not life-cycle

intergenerational saving. The analysis is different, and so are the

welfare issues, which are focused on the protection of consumption,

particularly among those whose consumption levels may not be far

above subsistence.

On the macroeconomic aspects of saving in developing countries

one of the most celebrated and most investigated predictions of the

life-cycle model is that there should be relations between aggregate

saving and the rate of income growth. If saving is accumulated

during the working years of finance retirement, then income growth

provides more savers than dissevers and positive aggregate saving.

This is because workers are saving on a larger scale than the

 27

retirees are disc-saving. However, even at the theoretical level, there

are complications. If young consumers anticipate a steady growth in

income, and can and will borrow against that increase, their

disserving in the early years of the life-cycle may include a negative

relationship between saving and growth in income. The standard

positive relation works best if each worker experience a stationary

income stream over his or her own life cycle, with growth taking

place between rather than within generations.

The crucial question is whether household really want to have flat

consumption stream. Contains young people may not want to

borrow against future income growth, even if that growth is

extremely likely. Old people also faced with daunting uncertainties

about health and death may not run down their assets in the

prescribed manner. This is an assumption that is strongly

supported by the balance of empirical evidence from developed

countries (Deaton, 1989). The cross-country empirical evidence

generally supports a positive effect of per capital income growth on

saving rates, variously defined (Gersovitz, 1988). However, the

results are rarely well- determined and rely on how simultaneity

between saving and growth are treated, and on the sample of

countries selected.
 28

2.1.3.0 DETERMINANTS OF SAVINGS

2.1.3.1 INCOME

Both the Keynesian savings function and the permanent income

hypothesis indicate a positive effect of income on saving. According

to the permanent income hypothesis, which distinguished between

permanent and transitory components of income, households will

spend mainly the permanent income and therefore the transitory

income will immediately be channeled to savings with marginal

propensity of savings from this income approaching unity. Studying

a group of developing countries, Gupta observed that savings

respond positively to transitory income. Koskela and Viren also

concluded that unanticipated real income had a positive effect on

savings.

Increased growth rates in income are also expected to have a

positive effect on household savings. Collins, for example, found

that income growth would increase savings especially if it

concentrated in higher saving households. In this study all three

definitions of income, namely, permanent income, transitory

income, and growth rate of income, were used as explanatory

variables.
 29

2.1.3.2 WEALTH

Different definitions of wealth are used in the literature depending

upon the different assumptions regarding the formation of

expectations about inter-temporal consumption. Still, wealth is

expected to have a negative effect on savings through the reduction

of savings out of permanent income. As in the case of the Schmidt-

Hebbel, Webb, and Corsetti study, this study also adopted the view

that monetary asset holdings can be used to measures wealth both

because monetary assets lesson the dependence on current income,

especially when it declines temporarily, and the data from monetary

assets are available on a comparable basis for all countries in the

sample.

2.1.3.3 INFLATION

The impact of inflation on saving in the life-cycle model is through

its role in determining the real interest rate. This is based on the

assumption of the absented of real balanced effect of inflation and

the non existence of money illusion in people‟s saving behavior.

Athukorala and Sen (2004) affirm that inflation may not always be

neutral because in the first place, the inflation rate is more difficult

to predict in the long run than in the short run. Besides, inflation
 30

brings about uncertainly in future income streams. Thus resulting

in higher savings on precautionary grounds. Lastly, they posit that

inflation could influence saving through it impact on real wealth.

Skinner (1988) and Zeldes (1989) observe that an increase in

uncertainty should rise saving since risk- averse consumers set

resources aside as a precaution against possible adverse changes in

income. Carroll (1991) shows that uncertainty help to explain why

consumption is highly correlated with income in the case of young

consumers who expect their incomes to increase in the future but

do not know by how much. Uncertainty also explains why the older

population saves a positive amount as they face a lot of uncertainty

regarding the length of their life and health costs. Carroll and

Samwick (1995a) obtained results which suggest that precautionary

saving may account for a large chunk of household wealth. Loayza,

Schmidt-Hebbel, and Serven (2000) find a positive and significant

relationship between inflation and private saving rate.

 31

2.1.3.4. FOREIGN SAVINGS

In the empirical work analyzing aggregate savings, foreign savings

indicators are commonly used as explanatory variables. The access

to foreign borrowing in international markets is expected to

supplement domestic savings and fill the gap between domestic

investment and national savings. The capital inflows are therefore

expected to reduce household saving. Giovannin observed a

significant negative effect, and Gupta a positive effect of foreign

savings. However, foreign savings which are expected to influence

national aggregate savings should not be a significant decision

parameter fro household savings.

2.1.3.5 DEMOGRAPHIC VARIABLES

The life cycle hypothesis implies that demographic variables affect

savings rates. The dependency ratio which is defined as the share of

population under age fifteen or over sixty-five is the most popular

demographic variables used in savings literature. The young and

the elderly are expected to consume out of past savings while the

persons of working age are expected to accumulate savings. It is

also indicated that there is a close causal link between the

developments of well- organized capital markets and the number of

children in the family.

 32

2.1.3.6 GROWTH

The lifecycle model of hypothesis predicts that an increase in the

rate of growth of income per capital will lead to an increase in the

aggregate saving rate. This is because it increases the lifetime

resources and saving of the younger population relative to that of

the older one (Modigliani 1970; Maisian, 1992; Bosworth, 1993, and

Carroll and Weil, 1994). However, controversy is still raging as to its

structural interpretation, since some see it was evidence that saving

drives growth through the saving investment link and others as

evidence that is growth that drives savings. A panel- instrumental

variable method was explored by Loayza, Schmidt-Hebbel and

Serven (2000) to estimate the impact of income growth on saving.

Their results show that a 10% point rise in growth rate increases

the saving rate by a similar amount. Using household data, Deaton

and Paxson (2000) found that the correlation between saving and

growth is largely due to the effect of income growth on saving. If

individuals determine their consumption plans on the basis of their

respective income profiles. Thus, when wealth is introduced into the

life-cycle model as an additional explanatory variable the model

yields ambiguous results about the relationship between saving and

growth. Attanansio, Picci and Scoru (2000), using different samples

 33

and econometric methods. Found that in each case, growth grander

cause saving. Besides, they observed that increase in saving rates

do not always come before increase in growth. Lastly, they find that

when additional controls were put in place, current income growth

had a negative impact on lagged saving rates.

2.1.3.7 FINANCIAL DEVELOPMENT

Until recently, financial development was assumed to enhance the

saving rate. It consists of elimination of credit ceilings, interest rate

liberalization, easing of entry for foreign financial institutions.

Enhanced prudential guidelines and supervision, and the

development of capital market. Loayzal and Shankar (20000) find

tat financial development has led the private sector to increase the

durable goods component to their assets. The effect of financial

development on saving rates can be separated into a direct short

run impact, which is generally positive (Loayza et al, 2000).

However, whether increases financial development itself

significantly increases overall propensity to save depends on the

extent of substitution between saving and other items in the

household assets portfolio. Consequently, the expected signs of this

relationship in the private saving function are ambiguous

(Athukorala and Sen, 2004).

 34

2.1.3.8 RATES OF RETURN (INTEREST RATE

The effect of interest rates on savings was inconclusive in the

previous empirical studies. According to inter- temporal

consumption decision, an increase in the rates of return increases

savings but real income effect of higher rates of return can affect

savings adversely. In his survey article. Balassa argued that the

effect of real interest rates on saving is positive fro developing

countries.

The effect of interest rates are may also be explained by the inflation

effect: assuming that nominal rates of interest are constant, a rise

in the inflation rate lowers the real cost of borrowing and hence has

a positive effect on consumer expenditure and a negative effect on

savings. Examining the household savings behavior, outliers

indicated that real interest rates exert a negative influence on the

savings ratio and the fall in real interest rates contributes to the

rise in savings ratio.

2.1.3.9 URBANIZATION

Urbanization is a requisite for any financial development of a

country. It create the opportunities for the enter populace to

develop the habit of saving some degree of their need for future

purposes and mainly for those that are suited or can fine
 35

themselves in large cities such as Lagos, Port-Harcourt,

Abuja,kano, Onitsha etc, and is due to the closeness of these

financial institutions to individual(s) thereby minimizing the

consumption stream of people in order to inculcate the sense of

dome tic saving habit.

2.1.4. CONCULSION

From all ramification, one could say that, low income, low interest

rate, inflation, wealth, raising population, low growth rate,

underdeveloped financial system and low foreign capital inflow

exerts the most adverse influence on saving in Nigeria. Therefore,

policy strategies to mobilize savings which improves people‟s ability

to save (through raising real per capita income and reducing real

incomes or reducing rapid population growth that increases the

dependency ratio among households) as well as increase saving

opportunity (through increasing the number of saving institutions

and spectrum of financial instruments available to the saving

public) whelp, at the same time, incorporating those that improve

incentives (through keeping real interest rates on saving positive)

should be pursued and at the same time encouraged.

 36

2.2 EMPIRICAL REVIEW AND EVIDENCE

Keynes (1936), defined savings as the excess of income over

expenditure on consumption. Meaning that saving is the part of the

disposable income which is not consumed in a particular period

(Umoh, 2003 and Uremadu, 2005). Given that income is equal to

the value of current output: and current investment (i.e. Gross

capital formation) is equal to the value of that which is equal to the

excess of income over consumption.

Keynes maintains that on the aggregate, the excess of income over

consumption (otherwise called savings) cannot differ from the

addition to capital equipment (i.e. Gross Fixed capital formation or

gross domestic investment), so to speak (see CBN statistical

Bulletin, Vol.1, December, 2000, PP, xvii-xviii). Saving is therefore a

mere residual; and the decision to consume or invest determines

the volume of national income accumulated in a period. In

Keynesian view, therefore, secularly rising income would result in

higher savings rate. As a matter of fact, savings is regarded as being

complementary to the consumption function. In its simplest form,

the savings function is derived from the linear consumption

function when the autonomous consumption expenditure is

separated off (Umoh, 2003). Keynes (1936), however, brought in the

 37

opportunity cost variable, the rate of interest, which the classical

economists now regard as the major determinant to savings (see

Olusoji, 2003; Chete, 1999; Mckinnon and Shaw, 1973). The

classical economists regard the rate of interest as the factor that

brings the demand for investments and the willingness to save into

equilibrium with one another (Umoh, 2003). The classical‟ view

accepts the fact that savings and investment are necessarily equal

(although this view is still a debatable point). They, however help

that every act of increased savings by an individual necessarily

bring into existence a corresponding act of increased investments.

There is the Permanent Income Hypothesis (PIH). This is one of the

two dominant paradigms which provide the point of departure for

most modern research on consumption and savings. The PH

focuses on a representative lived consumer. While on the paradigm

is the Life-cycle Hypothesis (LCH), which is derived from the

aggregation of finitely lived overlapping generations. This theory

views individual as choosing a life time stream of consumption and

savings in a way what present value of their consumption equals

the present‟s value of their lifetime earnings and inheritance

(Deaton, 1990).
 38

There abound numerous theoretical evidence concerning the

functional relationships between savings and a wide range of causal

variable. Fr instance Juster and Taylor) 1975) report that savings is

an increasing function of income. Moreover, Modigliani (1970),

Madison (1992),Bosworth (1993), Carroll and Weil (1993), Schmidt

–Hebbel, Serven and Solimano (1994),Modigliani (1995),Jappeli and

Pugano (1994), Edwards (1995), Collins (1995) and Uremadu (2000)

maintain that there exists a positive relationship between savings

and income growth rates. Aghevti (1990) in Ozigbo (1999) reported

that there is consensus that the level of savings is largely

determined by the level of income.

In addition, studies dealing with savings and interest rates are

categorized into two. Those who argue that high interest rates

include Mckinnon (1993), shaw (1993), Molho (1986),Balassa

(1989). Soyibo and Adekanye (1991), Gupta (1970) and

Chandavarkar (1971. Conversely Williamson (1968, Boskin (1978),

Juster and Taylor (1975. Howard (1978) and Uremadu (2006) found

negative correlation between real interest rates and national

savings. Inflation has been found to exert dual influences on

savings. First, it encourages the holding of real assets rather than

assets fixed in normal values, and thus reduce savings (Howard,

 39

1978) Secondly, inflation creates a feeling of uncertainty and

pessimism about the future and thereby encourages savings

Deaton, 1977 and Gyifason, (1981). Chete (1999) reports a negative

and significant effect on private savings on the broad money (M2) to

GDP, thereby refuting the potential for payoffs from efforts at

financial deepening. This particular finding accentuates the need to

rethink current preoccupation with financial deepening as the route

to growth and savings mobilization but contradicts Schhmidt –

Hebbel and Serven (1996) who reported a negative sign on the M2

coefficient.

LIMITATION ON THE PREVIOUS STUDY

This research work is set up to cover the lapses of the previous

studies. The previous work on savings in limited to following area:

the impact of savings on economic growth. This stud hopes to look

not only on the impact of savings on economic growth but further

into the factors that determine the growth rate of savings. Moreover,

previous studies covered the period between 1980 and 2000 but

this study hopes to study the trend between 1980 and 2010. Hence,

this study will capture the most recent trend. This study will have

as its focus: savings in Nigeria, as against cross- country studies of

previous work.
 40

CHAPTER THREE

3.0 RESEARCH METHODOLOGY

3.1 MODEL SPECIFICATION

Model specification is expressing the mathematical and the

independent variable, which will be included in the model. As

evidence by literature, there are some other macroeconomic

variables which serve as influence to financial saving other than

macroeconomic rate, such as; financial Development (FD), Real Per

Capital GDP (Y)‟ Export Capacity (EXP) of Trade Openness (TDO),

Net Capital Inflow (NCI) and others. The model in recognition of the

fact that it will be intellectually, statistically, and economically

unreasonable to assume that financial savings (S) is explained

single handled by interest is a multiple regressions model and is

stated thus:

AS = f (RGDP, TDO, INT, NCI),

It can also be stated thus:

AS = Bo + B1 RGDP + B2 TDO + B3 INT + B4 NCI + ei

Where; AS = aggregate saving

 41

RGDP =per capital real GDP.

TDO =Trade Openness.

INT = Interest rate.

NCI = Net capital inflow which is the balance between the inflow

and outflow of foreign investment.

Bo = Intercept of the function (constant term)

B1 – B1 Regression coefficients

t =1980 -2009

Ei =Error terms

3.2 ESTIMATION PROCEDURE

The Ordinary least Square (OLS) single equation method is the

estimation procedure adopted in the study. This is preferred

because it is easy to understand, simple in its computational

procedure and parameter estimation. It also possesses the

properties of best, linear, unbiased estimator (BLUE), which are

consistent and sufficient. The Microsoft Excel and PC Give

computer software packages are used for this analysis.

3.3 method of evaluation

 42

3.3.1 ECONOMIC APRIORI CRITICAL

This shows whether each independent variable in the equation is

comparable with the postulation of economic theory (i.e., if the

signs follows with the postulates of economic theory).

Using the OLS technique to estimate our model, we expect the

coefficients to appear as follows.

Table 3.1

Coefficient Expected sign Level of Confidence

significant Level

B1 Positive (+) 5% (0.05) 95%

B2 Negative (-) 5% (0.05) 95%

B3 Positive (+) 5% (0.05) 95%

B4 Positive (+) 5% (0.05) 95%

3.3.2 STATISTICAL CRITERIA

This aim at the evaluating of the statistical reliability of the

estimated parameters. In this case; coefficient of multiple

determination (R2), T- Statistics, F- Statistics, and Durbin –Watson

Statistic are used.

3.3.2.1 COEFFICIENT OF MULTIPLE DETERMINATIONS (R2)

 43

The R2 is used to test the Goodness of Fit of the model in the

economy. That is, to show the percentage of total variation in

dependents variable explained by the regression plane. The values

between 0 and 1.

The R2 is expressed mathematically as:-

R2 = B1 ∑1 Y + B2 ∑2 Y + B3 ∑3 Y …………… bn ∑ X n Y

∑ Y2

The higher the value of R2, the higher percentage of variation of the

dependent variable that is explained, by the regression plane. That

is the better the Goodness of Fit of the regression plane to the

sample observation, while the closer to zero, the sores the Goodness

of Fit.

The value of R2 lies between 0 and 1, the closer the value to 1, the

better he fit and the closer to zero, the worse the fit.

3.3.2.2 T- STATISTICS

The t-test is used to test the statistical significant or reliability of

the estimates of the regression coefficients.

If the probability at which Tcal is significant in our regressions

result for any independent variables is less or equal to our chosen

 44

level of significant (0.05), we reject the null hypothesis (H0), which

says that the independent variable is not significant. The invariably

means accepting the alternative hypothesis (H1), which states that

the independent variable in question is statistically significant in

our model.

3.3.2.3. F –STATISTICS

The F- statistic is used to test for the overall significance of the

regression result that is, the test aims at findings out whether the

explanatory variable (X1……………Xn)

Do actually have any significant influence on the dependent

variable. If the probability at which the Fcal is significant in the

regression result is les than our chosen level of significance (0.05),

we reject the null hypothesis (H0), which states that the regression

is significant. But if the probability at which the Fcal is significant in

the regression result is greater than our chosen level of significance

(0.05), it then implies that the overall regression is insignificant.

 45

3.3.3 ECONOMETRIC CRITERIA (SECOND ORDER TEST)

3.3.3.1 AUTOCORRELATION TEST

This is used to test for the presence of serial auto- correlation. That

is, the serial dependence of successive error terms in the regression.

Auto – correlation usually indicates that an important part of the

variation of the dependent variable has not been explained. The

problems of Auto- correlation are usually dictated by Durbin-

Watson (DW statistic.

It is given mathematically as:-

DW =∑ (et (et -1)2

(et)2

Where: DW = Durbin Watson

∑ = Summation of

et = Present Period errors

et-1 = Pervious Period Errors

 46

The Decision Rule is thus; Table 3.1

NULL HYPOTHESIS DECISION IF

No positive Reject 0<d<d1

autocorrelation

NO positive No decision d1<d<du

autocorrelation

NO negative Reject 4-d1<d<4

autocorrelation

NO negative NO decision 4d1<d<4-d1

autocorrelation

NO positive or Do not reject Du<d<4-du

negative

autocorrelation

Where:

d1 Lower limit

du =upper limit
 47

3.3.3.2 TEST FOR MULTICOLLINEARITY

This will be used to check for multicollinearity among the

explanatory variables, the basis for the test being the correlation

matrix result, using the correlation coefficient between pars of

repressors.

3.3.3.3. HETTEROSCEDASTICIT TEST

This test would be conducted to ascertain whether the error Ui in

the regression model has a common or constant variance. The white

heteroscedasticity test (with no Cross terms) will be adopted.

3.4 DATA REQUIRE AND SOURCE/ SOFTWARE PACKAGE

The data employed in this study secondary date obtained from

central bank of Nigeria, (CBN), the National Bureau of Statistics

(NBS), and Journals of economic studies.

 48

CHAPTER FOUR

4.0 PRESENTATION OF MODEL RESULTS

The results of our models are presented in Table 4, 1

Table 4.1 Result Summary

Variable Coefficient Std Error t-Value t- Prob Part R2

Constant -1.2179 8.5038 -1.432 0.1640 0.0731

RGDP 6.5665 1.4693 4.469 0.0001 0.4344

TDO 1.8661 1.7483 1.067 0.2956 0.0420

INT -57436 42416 -1.354 0.1874 0.0659

NCT 9.4328 17.744 0.532 0.5995 0.0108

R2 = 0.68145, F (4, 25) =13.905 (0.0000), a = 1.06824,

DW =1.18 RSS = 2.966976134

 49

4.2.1 REAL GROSS DOMESTIC PRODUCT (RGDP)

The coefficient of RDGP shows a positive value of 6.5665 implying

that a unit change in real gross domestic product will bring about a

positive 656.7% increase in aggregate saving.

4.2.2 TRADE OPENNESS (TDO)

The coefficient of TDO reflects a positive value of 1.8661 expressing

positive relationship between export capacity and aggregate saving

therefore exacting an increasing pressure on economic growth. The

positive sign shows that a unit change in trade openness will

increase Aggregate savings by 186.61%

4.2.3 INTEREST RATE (INT)

Interest rate shows a negative value of -57436, implies that a unit

increase in interest rate causes aggregate saving to decrease by -

57436%. In other words, interest rate is an effective policy

instrument for maintaining investment driven as a way of

promoting the aggregate economic growth.

 50

4.2.4 NET CAPITAL INFLOW (NCI)

Net capital inflow have a positive coefficient of 9.4328, this imply a

positive relationship between net capital inflow will contributes

about 943.28% to aggregate saving in Nigeria.

4.2 ECONOMIC INTERPRETATION OF RESULTS

Variable Expected signs Obtained signs Conclusion

RGDP Positive Positive Conforms

TDO Positive Positive Conforms

INT Negative Negative Conforms

NCI Positive Positive Conforms

4.3 EVALUATION BASED ON ECONOMIC CRITERIA

As stated early in chapter three, our parameter estimates are

expected to conform to a priori expectation consequently the table

below summarizes the outcome of our model parameters on a priori

ground.
 51

4.4 STATISTICAL CRITERIA FOR EVALUATION OF RESULT

These tests are determined by statistical theory and aims at

evaluating the statistical reliability of the estimates and parameters

of the model (Koutsoyiannis, 1977), from the sample observation.

The first order tests is carried out based on the following: R2 T – test

and F –test.

4.4.1 COEFFICIENT OF DETERMINATION (R2)

In our model. R2 = 0.68145 which implies that approximately 68%

of the variation in the dependent variable (SA) is caused by the

explanatory variables included in this model.

4.4.2 THE T-TEST

This test was conducted to ascertain the significant status of each

of the parameters or variables. In doing this, we employed the two-

tail tests which compared the t- calculated from each of the

explanatory variables with the t- tabulated.

At 5% level of significance

N-k degree of freedom

α = 5%
 52

Α/2 = 0.005/2 =0.025

n –k = 30 -5 =25

Hypothesis

HO: Bs = 0 (Individual parameter estimates are not significant)

H1: Bs ≠ 0 (Individual parameter estimates are significant)

Decision rule

If t-cal is greater than t-tab at 5% level of significance we reject the

Ho and accept if other wise.

T-test summary test

Variable t- value t-tab CONCLUSION

Constant -1.432 ±2.056 Not Significant

RGDP 4.469 ±2.056 Significant

TDO 1.067 ±2.056 Not Significant

INT -1.354 ±2.056 Not Significant

NCI 0.532 ±2.056 Not Significant

The above results in the table show that only real GDP is

statistically significant since their-t-test cal is greater than the t-

tab.
 53

4.4.3 THE F- TEST

The F- test, which follows an F-distribution, measures the overall

significance of the model.

Hypothesis Test

H0: B1 =B2 =B3 =0 (The model is statistically insignificant)

H1: B1 ≠ B2 ≠ B3 ≠ 0 (The model is statistically insignificant)

At α = 5% level of significant, with n-k degrees of freedom.

Decision Rule

Reject Ho if f-cal > f-tab and accept Ho if f- cal < f-tab.

From the f-table we have 2.7426 which is less than f-cal of 13.905

we reject Ho and conclude that the model is statistically significant.

4.5 ECONOMETRIC CRITERIA (SECOND-ORDER TEST)

4.5.1 NORMALITY TEST

This test was carried out to check whether the error term follows

the normal distribution. The normality test adopted is the Jargue-

Bera (JB) Test of normality. The JB test of normality is an

asymptotic, or large-sample, test and it is based on the OLS

residuals. These test computers the skewness and Jusrtosis

 54

measures of the OLS resident and use the Chi -square distribution

(Gujarati, 2004: 148).

Hypothesis: Test

H0: q1 ≠ 0 (The error term follows a normal distribution)

H1: q1 ≠ 0 (The error term not follow a normal distribution)

At α = 5% with 2 degree of freedom.

Test Statistics:Type equation here.

JB = n s2 + (k -3)2
6 24 = 7.523

Where n= sample size,

S = Skewness coefficient, and

K =Kurtosis coefficient

Decision Rule: Reject H0 if X2 cal > x2 tab (2df), and accept H0 if

otherwise

From the result obtained from Jarque-Bera (JB) Test of normality,

JB =7.523 which is shown in appendix, and from chi-square table

x2 cal = 5.239
 55

Therefore, since x2 cal = 7.523 ≤ tab = 5.99 at 5% level of

significance, we accept H0 and conclude that the error term does

not follow a normal distribution.

4.5.2 TEST FOR AUTOCORRELATION

The convectional Durbin Watson d statistics is employed. We

compare the established lower limit dl and upper limit du of Durbin

Watson based on 5% level of significant and k degree of freedom.

Where k = number of explanatory variables excluding the constant.

Decision Rule

If d < du, we reject the null hypothesis (H0) at α significant level,

that is, there is significant positive autocorrelation.

If (4-d) <du, we reject the null hypothesis (H0) at α significant level,

that is, there is significant negative autocorrelation.

If d < du or (4-d) <du, we accept the null hypothesis (H0) at 2α

significant level. There is significant autocorrelation, positive or

negative.

From our regression result and the Durbin Watson d statistical

table.

d = 1.18
 56

dl = 1.143

Du = 1.739

From the result, the estimated d = 1.18 and the tabulated DW with

4 degree of freedom for 3 observations are dl = 1.160 an du = 1.735.

Since d < du that is 1.18 < 1.735, we conclude that there is a

significant positive autocorrelation.

4.5.3 TEST FOR HETEROSCEDASTICITY

This test is basically focused on the variance of the error term. The

test helps to ascertain whether the variance of the error term is

constant.

H0: B1 = B2 =B3 =0 (Homoscedasticity)

H1: B1 ≠ B2≠ B3 ≠ 0 (Homoscedasticity)

Decision Rule: Reject H0 if x2 cal > x2 tab (0.05) and accept if

otherwise. From our result, the calculated chi-square (x2) at 8

degrees of freedom is 24.248, while the tabulated x2 0.05 (8 degrees

of freedom) is 15.5, since our estimated 24.248 ≥ 15.5 we reject the

null hypothesis of homoscedasticity and accept the alternative

hypothesis of heteroscedasticity, meaning that the error terms have

a constant variance.
 57

4.5.4 TEST FOR MULTICOLLINEARITY

That test is carried out using correlation matrix.

According to Gujarati, 2004. Multicollinearity is a problem, if any

correlation exceeds 0.8.

AS RGDP TDO INT NCI Conclusion

AS 1.000 Absence of

Multicollinearity

RGDP 0.7984 1.000 Absence of

Multicollinearity

TDO 0.2921 0.2398 1.000 Absence of

Multicollinearity

INT 0.04200 0.1861 0.4699 1.000 Absence of

Multicollinearity

NCI 0.6602 0.7034 0.4659 0.1094 1.000 Absence of

Multicollinearity

From the table above, there is no correlation that exceeds 0.8; we

conclude that there is no presence of Multicollinearity between all

the variables.
 58

CHAPTER FIVE

SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1 SUMMARY OF FINDINGS

Based on findings in this study with the coefficient of various

variables that was conducted employing econometric approach. It

can be seen that trade openness is one of the major factors that

reduce aggregate savings in the Nigeria. Which may some

government policy that conflicts‟ with policy that aims at improving

the export capacity?

Also, a greater proportion of aggregate savings in Nigeria is made

by the low income earners who do not engage in long term savings

that will generate the needed productive investment while the high-

income group (potential investors) that should engage in long term

saving engages in conspicuous consumption and stashes their

money in foreign accounts.

 59

Furthermore, we found out that the coefficient of interest rate,

which is -57436, is high in Nigeria. This implies that the higher the

interest on savings deposit the more willing will savers be to replace

present consumption with future consumption. Hence the classical

economists view the interest rate as a real reward or abstinence or

thrift. This goes to substantiate the fact that Nigeria savings is

predominantly mobilized from “target saves” who are mainly civil

servants, small businessmen, artisan, traders and those who may

be saving for their children in school or for retirement purposes.

Their motive for saving is to provide for future consumption.

5.2 CONCLUSION

After econometrically analyzing the factors that affect savings

behavior in Nigeria over the period of 1980 -2010. The empirical

findings have some serious policy implications relevant to the

growth and development of the nation. For the Nigeria economy to

break away from its current level of underdevelopment, policy

makers must recognize the importance of these variables- per

capital real gross domestic product, trade openness, interest rate,

Net capital inflow in the Nigeria economy.

 60

Thus, the effective manipulation of these variables through

consistent and effective target policies for facilitating adequate

mobilization of savings is necessary for productivity investment.

5.3 POLICY RECOMMENDATIONS

Following our empirical findings, the following recommendations

are made for effective policy formulations.

* Luxurious consumption should be discouraged through the

imposition of taxes on certain luxury goods.

* The banking industry should improve the banking facilities and

also inculcate banking habit among Nigerians by innovating

attractive products that will attract their customer‟s varying needs

of liquidity, yield, risk, and maturity.

* Export capacity should be improved by simultaneously increasing

productivity in capital goods for export as the most effective way of

increasing foreign reserve, which has positive effect on the level of

savings in Nigeria.

* Increased savings facilities disposable income should be follow up

with policies that increase interest rate to achieve the desired

objectives of raising the level of savings.

 61

* It is crucial to note that adequate savings mobilization is a

fundamental but not sufficient condition for an increase

investment. Therefore, adequate mobilization of savings should be

followed up with the provision of adequate information on potential

investment opportunities in the country.

BIBLIOGRAPHY

Aghevli, Bujan, james.B, Peter .M, Dellano .V, and Geoffrey

.W(1990). The Role of National Saving in he World Economy:

Recent Trends and Prospects.IMF Occasional Paper N0. 67.

Carroll, Christopher, and David .W. (1994). Saving and Growth: A

Reinterpretation. Carnegie Rochester Conference Series on

Public Policy 40: 133-192.

Cheter, Louis (1999). Macroeconomic Determinants of private

saving in Nigeria. Monograph series N0 7. Nigerian Institute of

Social and Economic Research (NISER).

 62

Collins, S.M.(1989). Savings Behavior in Ten Developing countries,

paper Presented at the NBER Conference on Savings, Maui

(Cambridge, Mass: National Bureau of Economic Research.

Deaton, Angus, and Christian P. (2000). Saving and Growth:

another look at the Cohort Evidence. Review of Economics and

Statistic 82 (2) : 212-225

Gujarati. N. (2006) Essentials of Economics New York: Mc Graw Hill

International Press.

Loayza, Norman, Schmidt-Hebbel .K, and Luis s. (200). What Drives

Private Saving Across the World? Review of Economics and

Statistics 82 (2).

Modigliani, Franco. (1970). The life- cycle Hypothesis of saving and

Inter-country Differences in the saving Ratio. In W.A. Eltic,

M.F.G. Scott, and J.N. Wolfe, eds., Induction, Trade, and

Growth: Essays in Honour of Sir Roy Harrod. Oxford:

Clarendom Press.

Schmidt – Hebbel, Klaus, Steven B.W. and Giancarlo C. (1992).

Household saving in Developing Countries: First cross-

country evidence. The World Bank Economic Review 6 (3):

529-547.
 63

JOURNALS

Ando .A. and Modigliani. F. March 1963). The Life-Cycle

Hypothesis of saving: Aggregate Implications and Test,
American Economic Review, Vol, 53, N) 1,Part 1

Gersovitz, M. (1988). Saving and Development, in Chenery. H and

Srinivasan .T.N., eds., Handbook of Development Economics,
Vol.1 Amsterdam: Elsevier.

Kell .C.A (1976). Savings, Demographic Change and Economic

Development: Economic Development and Culture Change,
Vol.24,No.4,PP.354-362, World Bank Review, Washington D.C.

Sebastin. O.U. (2007). Core Determinants of Financial Savings in

Nigeria. An empirical analysis for National Monetary Policy
 64

Formulation. International Review of Business Research

Paper, Vol.3,No.3,pp.356-367.

Transel, A. (1992) Household Saving, Income and Demographic

interactions, METU studies in Development, VOl.19, No 1.

Tochukwu E.N. and Festus O.E. (2008) .an Error- Correlation Model
of the Determinates of private saving in Nigeria. Journal of the
department of economics, university of Ibadan, Vol.6, pp.299-
321.

Zelds, S.P. (1989). Consumption and Liquidity constraints: an

Empirical Investigation, Journal of Political Economy, Vol. 97,
N0.2, pp.305-346.
65