Determinants of aggregate domestic private savings in Kenya, 1980-2003
Tiriongo, Samuel Kiplang'at
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This paper studied the determinants of aggregate domestic private savings in Kenya capturing the reform period 1980 to 2003.It was motivated by the existence of substantial fluctuations in the ratio of aggregate domestic private savings to GDP and the interest to test the impact of demographics and financial sector development on private savings. The study included demographic variables like young and old age dependency ratios, and the different measures or indicators of financial sector development: the ratio of M2 money to GDP, the ratio of liquid liabilities to GDP and the ratio of the assets of commercial banks to the assets of' central bank as new variables previously not used in any study on Kenya. Among the other variables were income tax, deposit rate used at central bank, current account deficit. The interest rate spread, terms of trade, inflation rate and real gross disposable per capita income. A hybrid model was specified consisting of all the variables identified from the Life Cycle hypothesis on savings and consumption, the permanent income hypothesis and the simple Kevnesian hypothesis was used in the estimations. The results of the estimations showed that aggregate private savings in Kenya is significantly determined by the current account deficit, the ratio of M2 money to GDP, real gross per capita income growth, deposit rate and the old age dependency ratio.