CHAPTER ONE
INTRODUCTION
1.1Problem Statement
Saving anywhere in the world remains one of the most important types of household‘s economic activities. To this end therefore, an adequate supply of domestic and/or household saving remains a core national policy objective; mainly due to its direct impact on growth process as well as its role as domestic investment stimulants. Rehman, Bashir and Faridi (2011) and Ogbokor and Samahiya (2014) further reaffirms the inevitability of saving in the economy by stressing the fact that, higher savings rate is crucial for long term investment process, which in turn manifest into industrialization that breeds; employment opportunities and economic development. Given the increasing integration of international financing for instance, it is high domestic saving that can ensure macroeconomic stability internally. This postulations of positive influence of savings on investment and subsequently growth and development is an indication that savings matters for growth and development anywhere in the world.
Ironically however, it is the dismal household saving record in most African countries relative to other regions of the world that have been of concern to economists in the recent time. Despite the increasing trend of national domestic savings in Nigeria, the country is yet characterized with low investment and output growth thus, suggesting that her average saving rate ratio is still far from being impressive. Reaffirming this poor state of saving –investment and output relationship is Iyoha (1998), who attributes the mid-1980s negative output growth rate host of factors but mainly to decline in investment and savings. In a similar development, Nnanna (2003) also posited that the underdevelopment state of the Nigerian economy is due to her poor savings and in investment culture. Basically, there is lack of incentives to household savings in Nigeria mainly due to: (i) lack or poor understanding of household savings determinants; and (ii) high saving mobilization cost in terms of the transaction costs involved and also the cost of overcoming the information asymmetry related to ensuring savers are convinced of postponing their consumption to a future date.
While acknowledging the vast of empirical literature that have shed light on various aspects of saving behaviour, it is also worth noting that, crucial questions yet remain unanswered with regard to factors with potential for enhancing the performance of household savings. Germane in this study are issues centered on: (i) effectiveness of higher income rate as stimulus for raising household saving rate in Nigeria; (ii) effectiveness of financial development for enhancing household savings behaviour in Nigeria; and whether there a role for monetary policy in increasing household savings in Nigeria?.
1.2Objective of the Study
In attempt to address the aforementioned research issues, the focal point of this present study is to determine the probable determinants of household savings in the case of the Nigerian. To achieve this broad objective, the study will specifically:
1. Examine the effectiveness of higher income growth in raising household saving rate in Nigeria.
2. Examine the effectiveness of financial development for enhancing household savings behavior in Nigeria.
3. Examine the role of monetary policy in increasing household savings in Nigeria
1.3Justification of the Study
Although there are a number of country specific studies focusing on saving and factors that explain saving behavior in Nigeria. However, most of these studies namely; Akpan (2011), Obayelu (2012), Abiara and Arosanyin (2014), Osondu et al. (2015), among others, are rather micro based in nature. The present study would however, expand the frontier of knowledge on the issue of household savings; especially in the view of dearth of macro level empirical analysis on the determinant of household saving in developing economy such as Nigeria. Essentially, the study will deviate from the usual disaggregated mode of evaluating saving behavior in order to provide a useful empirical framework on an effective and smooth transition of national savings to investment and sustainable development. Hence, if the outcome from each tool (i.e. the response of household saving to national income level, financial development and monetary policy) is known on the basis of the empirical evidence to be provided by this study; such would assist the policy makers in understand the effectiveness of each of these instruments as a stimulant of household saving in the context of Nigerian economy.
1.4Scope of the Study
This present study narrows its analysis of household saving determinant to Nigeria as a case study. It uses annual time series data ranges from 1970 and 2017 to evaluate the response of the Nigeria national saving growth rate to a number of probable saving determinants.
1.5Plan of Study
Following this introductory chapter, the other chapters are as follows: Chapter two provides background analysis on saving behaviour in Nigeria. Chapter three dwells on the existing theory and empirical literatures. Chapter four discusses the methodology and model specification. Chapter five analyzes the empirical results while Chapter five draws conclusion and provide policy implications.
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