Abstract National savings play an important role in the economic development of many developing countries, especially if capital markets are weak. In this paper we investigate the determinants of national savings for Fiji. We use the recently developed autoregressive lag distributed modelling approach, shown to provide robust estimates in small samples, to model Fiji's savings behaviour. Our results indicate that the life cycle hypothesis helps explain Fiji's savings behaviour. The key finding is that economic growth has the biggest impact on savings rate, suggesting that savings will increase with an increase in economic growth. Introduction National savings play an important role in the economic development of many developing countries with limited avenues for financing investment projects. These countries, characterised by weak capital markets, are forced to rely heavily on domestic savings to finance such development projects. It is the shortage of national savings that is one of the most critical constraints on economic growth in most developing countries (Krieckhaaus, 2002). High national savings is likely to stimulate national investment, which in turn will provide the basis for more rapid economic growth (Nurkse, 1953). Fiji Islands is a small isolated country with a weak capital market and is dependent mainly on national savings for financing investment in the country. It has a population of around 800.000 and is regarded as a lower- middle income country with per capita income of US $ 2110. Fiji's savings rate, however, has been declining throughout the 1980s and most of the 1990s and started to rise in the last four years (Figure 1). Total national savings as a percentage of gross national product has averaged only 17% in the 1968 to 2000 period. Given the importance of savings and the apparent low and downward trend over the last two decades, this study attempts to examine the factors that have affected savings in Fiji. Figure l: Savings Rate in Fiji, 1968 to 2000 National Savings rate 15 10/ 5 l I Year l.. - . -. _ _ .. . _ - .- ----- . ---.. - .. - . -- .- . . .. . - - .- .- - -- . . . -. - . . . .- .. .. . - - - -, . Source: International Financial Statistics, 200 1. There are two other reasons for undertaking the present study. First, with the exception of a few recent studies (Agrawal, 2001; Sarantis and Stewart, 2001) on savings behaviour in developing countries, many Studies (Khan et al. 1994; Cook, 1995; Cardenas and Escobar, 1998; Hussain and Brookins, 2001, amongst others) are open to criticism on econometric grounds for they ignore the fact that variables used in modelling saving rates are likely to be non-stationary and potentially integrated. It follows then that inferences made concerning long-run elasticities are potentially flawed and misleading, as noted by Yule (1926) and Granger and Newbold (1974) ~ ' Given this limitation in the literature on the determinants of savings rate, this study attempts to 1 Yule (1926) suggested that regression based on non-stationary series are known as ' nonsense ' regression While Granger and Newfold (1974) termed this problem ' spurious regression '. correct for spurious regression by using cointegration analysis within the recently developed autoregressive distributed lag (ARDL) framework (Pesaran and Shin 1998 and Pesaran, et al. 2001), allowing estimates to be made of both short-run and long-run relationships. Second, although studies on savings for groups of countries and regions have proliferated (see, inter alia, Giovannini, 1983; Edward, 1996; Callen and Thimann, 1997, Dayal-Gulhati and Thimaun, 1997; Hussain and Brookins, 2001), the focus has seldom been on a specific country. While This lacuna may be due to the lack of appropriate time series data on developing countries, no such problem exists for Fiji. The other issue is that given the use of cross-sectional data analysis in many studies, one cannot properly infer from observations across countries at a point in time what might happen in a country over time. A time series study overcomes This problem, providing a stronger basis for informed policy making. The aim of this paper is to delineate the short-and long-run relationships between savings, real interest rate, income, current account deficits and age dependency ratio in Fiji using cointegration and error correction models over the period 1968-2000. The balance of the article is as follows: the next section discusses the theoretical framework and provides a brief review of the literature; This is followed by a discussion of the econometric methodology to be applied, While the penultimate section presents the empirical results followed by the conclusion. Theoretical Framework Following on various studies on determinants of fiom savings (Modigliani, 1963; Giovannini, 1983; Doshi, 1994; Edwards, 1996; and Agrawal, 200 1) the Modigliani-Brumberg-Ando ' Life Cycle ' hypothesis is applied to examine the savings pattern in Fiji. The ' Life cycle ' hypothesis contends that current savings decisions of households are a consequence of an act to distribute their lifetime consumption evenly over their lives so as to maintain the same lifestyle during retirement (Modigliani, 1970). This hypothesis implies that savings rate depends on growth of income andlor the age structure of the population. With respect to the growth rate of income, the life cycle theory postulates a positive relationship between savings rate and income growth rate, Since higher income growth makes the young richer than the old; Hence the young will be saving more than the old will be dis-saving. Recent empirical studies show this relationship to be true for some developing countries (Agrawal, 2001). However, it is also possible that the effect of the rate of economic growth will be positive only to the extent that households, on average, accumulate wealth when they are young in order to dispose of this wealth when they are old. It follows then that growth rates may adversely affect savings rate in countries where households spend before they earn by borrowing. Furthermore, the rate of growth will have little or no effect on national savings if the age dependency ratio-defined as the population younger than 15 years of age plus population over 65 years old as a proportion of the working age population- is high. Studies by Carroll (1 992) and Carroll and Weil (1 994) justifiably argue that a negative relationship between the two variables is also possible. Their argument is based on the notion that, other things being equal, an exogenous increase in growth level may make consumers feel wealthier and thus increase their consumption levels, leading to a lower savings ratio. Against this background, the expected sign of the savings growth rate is ambiguous. The age structure of the population is also seen as an important determinant of savings in the life cycle model, since a declining share of dependent population to the working population is believed to correlate with higher savings rates. However, the existing empirical evidence on this relationship is mixed. For instance, Leff (1969) showed that this is true for both developed and the developing countries, while Ram (1982), Doshi (1994) and Kelly (1988), found no or very weak evidence of this relationship between savings rate and the age dependency ratio in developing countries. Agrawal (2001) found a significant negative relationship between savings and the age dependency ratio for three of the seven Asian countries. Apart the life cycle hypothesis, kom, following Agarwal (2001), Hussain and Brookins (2001) and others, we employ current account deficits and real interest rates as additional explanatory variables. The relationship between national savings and current account deficits as a share of gross national product is clear cut-high foreign savings leads to a fall in national savings, since they are substitutes. The real interest rate, defined as the difference between the nominal interest rate and the expected inflation rate, is the reward for postponing present consumption into the fbture. The net iinpact of the real interest rate on savings is unclear both theoretically and empirically, though the usual presumption is that the total effect is positive. One of the main reasons for the ambiguity follows from the distinction between the resulting income and substitution effects from an interest rate change (see Agrawal, 1 200; Giovannini, 1983, 1985). The overall iinpact of interest rates on savings could be positive or negative depending on which effect is larger. Hence, the direction of the relationship is an empirical issue Depending upon the relative strength of income and substitution effects. If the substitution effect outweighs the income effect savings would rise with an increase in real interest rate. FRY (1980, 1995) found that interest rates have a positive but small impact on savings while Giovannini (983 1, 1985) found no statistically significant relationship between savings and interest rates. Agrawal (2001) found mixed results on this relationship for four Asian co ntries. ~ ~ Model specification Based on the theory reviewed in the previous section, we posit the following specification to deteimine the national savings rate for Fiji. where S is the savings rate which is calculated as a ratio of gross national savings to gross national product; GR, is the growth rate of per capita Taiwan's savings were significantly related to interest rate elasticities (- 0.190), whereas savings from Malaysia, Korea and India were unaffected by real interest rates. income; IR, is the real interest rate3; CAD, is the current account deficit as a proportion of GNP; and DEC is the share of dependents (below 15 and above 65) to the
đang được dịch, vui lòng đợi..
![](//viimg.ilovetranslation.com/pic/loading_3.gif?v=b9814dd30c1d7c59_8619)