Determinants of Household Saving.pdf

Ethiopia Civil Service University
MSc in Economics
Nigus Temare
MSc. Thesis presentation
Determinants of Household Saving: In case of Addis Ababa
By
June 16, 2021
Addis Ababa, Ethiopia

BY: NIGUS DEP’T: DEVELOPMENT ECONOMICS ECSU 16/06/2021 2
Content
 Introduction
 Statements of problem
 Objectives
 Methodology
 Result and Discussion
 Conclusion
 Recommendation

Introduction
• Achieving sustainable economic growth is the main and primary objective of
the world’s countries in general and particularly in the least developing
countries (Nigus, 2015).
• According to Todaro & Smith (2012) Investment primarily depends on the
amount of domestic savings of the country and which subsequently increases
capital accumulation and ultimately increases economic growth.
• Different theoretical and empirical evidence shows the important of saving for
investment creation and an engine for accelerating economic growth.

Cont.…
• However, we often face inadequate savings and investments especially in
Ethiopia. According to world bank estimate the gross domestic saving rate was
17.2 percent in 2011 and 24.1 percent in 2018 and it a decline into 22.1 percent
in 2019. but the average domestic saving rate stood only 20.6 percent.
• So its domestic saving rate was very low compare to other countries and its
economy depends on foreign savings and foreign debt to supplement the gap.
• As a result, this study was analyses the determinants of saving particularly at
household level.

Statement of problems
• There is debate among the economic school of thoughts regarding the
importance of saving for economic growth.
• Saving is the main driver of capital accumulation through affecting the level of
investment in the given economy.
• It has been considered to be one of the factors affecting growth to lead the
developing countries to the path of development.
• Various empirical studies have been conducted regarding key determinants of
household saving both in Ethiopia and world.

Cont..
• However, the findings are not consistent with one another.
• In addition, , the studies are unable to take into account the effects such as the
housing situation, asset value, children's education (school fees), and transport
cost .
• Moreover, there was no enough research on the key determinants of saving at
the urban household levels.
• Therefore, further investigation and understanding of the factors that
determining household saving decisions are very essential.

Cont.…
• It will help to identify the mechanisms for mobilization of local resources in
line with capital investments and to recommend practical policy-related
solutions to problems of saving by households.
• Therefore, this study aims to analyze the determinant of household saving in
Addis Ababa.

Objectives
 The main objective of the study is to analyze the determinant of household
saving in Addis Ababa. Based on this basic objective, the study aimed to
answer the following specific objectives:
 To assess the saving status of the households in the study area.
 To compare socio-demographic and economic characteristics of saver vs non-
saver.
 To scrutinize the main determinants of households’ savings in the study area.

Methodology
 Research Design
 The study was used both descriptive and explanatory types of research design
 Research Approach
 The research followed mixed research approaches
 Data Source and Types
 A cross-sectional primary data was used and collected from a field survey at
one point at a time

Sampling Designs
 The study was used Multistage cluster sampling technique
 Firstly, the study were selects three sub city randomly which is Arada, Bole and Yeka
 Secondly, the study select two woredas from each sub cites by using a simple random
sampling technique
 Finally, households units was selected from each woreads by Simple random sampling
technique and following the formula is used (Kothari, 2004, pp 175) and
 As a result, a total of 256 household were selected and used in this study.
 Method of Data Collection
 Structured questionnaire and Interviews was used as a methods of data collection.

Methods of Data Analysis
 To analyse the data both Descriptive statistics and Econometric Models used
Binary logistic model was used in this study
𝑌𝑖 = ln
𝑝𝑖
1 − 𝑝𝑖
= 𝛽0 + 𝛽1𝑆𝐸𝑋𝑖 + 𝛽2𝐴𝐺𝐸𝑖 + 𝛽3𝐸𝐷𝑈𝑖 + 𝛽4𝑀𝑅𝑆𝑖 + 𝛽5𝐸𝑆𝑖 + 𝛽6𝐷𝑅𝑖 + 𝛽7𝐹𝐴𝑀𝑆𝑍𝑖 + 𝛽8𝐼𝑁𝐶𝑖 + 𝛽9𝐴𝑆𝑆𝐸𝑇𝑖
+ 𝛽10𝐻𝑆𝑖 + 𝛽11𝐶𝑆𝐹𝑖 + 𝛽12𝑇𝑅𝐸𝑋𝑖 + 𝛽13𝐻𝐸𝐿𝐸𝑋𝑖 + 𝛽14𝐶𝑂𝑁𝐸𝑋𝑖 + 𝛽16𝐴𝐶𝐶𝑖 + 𝛽17𝐼𝑁𝑇𝑖 + 𝜀𝑖
Description of variables

Result and Discussions
 The data analysis and presentation were organized into two main sections;
descriptive statistics and econometrics model
Demographic and Socio-economic characteristics of the households
 The response rate of household was 100%.
Summary statistics for continuous variables
Table1

Cont.---
 Saving status of the household
Saver ; 52%
Non- Saver;
48%
Saving Status of Household

Cont.…
 Analysis of Demographic and Socio-economic characteristics of households, by their Saving
Status
Table2
 Additionally , income of household head was also assessed based on saving the result shows
as income increase household become more saver. This is consistent with the theory of
AIH&PIH.
 Household age and saving status of household shows that age increases the saving
performance of the household increase in the middle age.

Cont..
 The main reasons for households saving

Cont..
 The main challenges for households saving
81%
32%
80%
35%
21%
23%
55%
44%
6%
18%
22%
41%
0%
15%
30%
45%
60%
75%
90%
Challenges that influence household saving Low income
Increasing of child school fees
Increasing cost of living
Absence of incentives
Dependency ratio
Low interest rate
Increasing House Rents
Increasing of Transport cost
Age
Marital status
Lack of education
Social affairs

Econometrics Analysis
 Binary logistic regression model are used for analysing the key determinants of
household saving . The results displayed in table below shows out of the total
sixteen variable ten of them are statistically significant.
Table3
From this, • Income
• credit access
• educational level,
• consumption expense
• children school fees
• transport expense
• marital status of a household at 1%
• Employment
• housing situation
• awareness of interest rates have significant at a
5%

Conclusion
 The main objective of this study was to to analyse the determinant of household saving in
Addis Ababa.
 To achieve study’s goal, the study used a cross sectional data using field survey and
collected from 256 households in the selected sub city.
 A multistage cluster random sampling procedure was adopted.
 The result demonstrates that out of the total sampled households 52% of them involve in
saving activity while the remaining were not.

Cont.…..
 In addition, the study shows there was significant associations between
demographic and socio-economic characteristics of households with their
saving status.
 The paper has employed the binary logit model to identify the key
determinants of household saving.
 The study considered saving status as outcome variables (saver vs. non saver)
and sixteen explanatory variable.

Cont..
 The findings of the study after modelling and analysis shows that households
headed by a female, total income, education level, awareness of interest rate, and
access to credit have a positive and significant effect on the probability of household
saving.
 However, consumption expense, transport expense, marital status, housing situation
by rented, and school fees for children of the household has a negative and
significant influence on household saving.

Recommendations
 Income is the key determinant of saving then, due attention should be given to
increase the income of households. Income could be increased by implementing
policies that improve productivity, increase employment opportunities, improve the
business environment and reduce underemployment.
 Education has a positive impact on household savings mainly because of the
awareness that occurs with higher educational levels. The concerned body should
work on awareness creation and promotions about saving and its advantage in
improving and sustaining the economic growth of the city.

Cont..
 Improving household’s access to credit by providing low-interest rates should
be supported, and policy intervention should focus on increasing access to
credit and access to promote household saving.
 Housing policies that support the improvement of rental housing are essential
in the study area. The Government should have to pay attention in formulating
policies such as increase the availability of more houses through building,
provision, and expansion of affordable rental housing, and this leads to great
economic and solves social hardship for urban dwellers.

Thank You!!!

Determinants of Household Saving.pdf

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