Macroeconomic Determinants of Financial Savings in Ghana

Abstract

The study investigated the functional relationships between financial savings and macroeconomic variables in Ghana. Extensive literature on savings and its major determinants was surveyed. The trend analysis of the historical relationship between financial savings and selected macroeconomic variables suggested that movements in inflation, deposit rate, investment, gross domestic product impact significantly on the level of financial savings in the country. The study also applied the Error Correction Methodology to assess the quantitative relationships between financial savings and macroeconomic variables. The study has revealed that the level of investment has positive and significant impact on savings in Ghana. This re-affirms economic theory (Keynesian theory) and other empirical works that support the view that there exist a positive relationship between savings and investment. The paper further revealed that deposit rate has significant effect on savings mobilization in Ghana due to the impacts of the financial reforms which brought innovation and competition into the banking sector. More so, the study revealed that the level of income has significant impact on savings in Ghana. Finally, banks should be urged to raise the deposit rates a bit above the current prevailing rates in order to serve as an incentive to attract deposits since current deposit rates offered by the various commercial banks are not competitive enough in order to promote savings in the country.

Keywords: Financial savings, Inflation, Interest Rate, and Income