The determinants of households savings in Zambia

Abstract

While the recent years have seen Zambia become increasingly dependent on foreign savings for its economic and developmental programmes, access to these savings is becoming more difficult. This implies that the country will have to depend more on the mobilisation of domestic savings, if it is to achieve the intended economic growth. It is envisaged that Zambia needs to achieve growth of between 5 to 8 per cent per annum in the medium term in order to have any impact in the reduction of poverty, which in 1998 stood at more than 70 per cent of the total Zambian population. (MFNP, 2001 ;CSO, 1998)While private savings are more likely to be available for investible purposes it has generally been found that, in contrast to the developed countries, household savings tend to comprise the largest component of domestic savings in the developing countries (Bautista, 1990). The ability and willingness of households to save,therefore, as well the opportunities to do so, can over time significantly influence the rate and sustainability of capital accumulation and economic growth in developing countries. This paper thus attempted to investigate and identify the factors that determine household savings in Zambia. In addition to income, other variables that included the interest rate, inflation rate, dependency rate, urbanisation rate and education were analysed for their impact on household savings, basing on theoretical and empirical evidence.From the analysis, it was found, as opposed to most economic literature, that income while accounting for part of the short-run variations in household savings did not have any long-run effect. Rather, in the long-run, it was education and inflation with positive and negative coefficients, respectively, that influenced household savings.These two variables were also significant in determining the short-run variations,along with interest rates that indicated an inverse relationship with household savings.