Low Savings Rates in the Economic Community of West African States (Ecowas): The Role of the Political Instability-Income Interaction

Abstract

This paper employs PCSE, OLS and TSLS with random effects to investigate the impact of the political instabilityincome interaction on savings in ECOWAS countries during the period 1996-2012. The empirical evidence illustrates that higher political stability is associated with higher savings and income levels moderate the adverse effect of political instability on savings, indicating that the impact of political instability on savings is higher in low income ECOWAS countries, but lesser at higher levels of income. The paper recommends the promotion of political stability via increases in incomes to raise savings in the ECOWAS region.

The Determinants Of Household Savings In South Africa: A Panel Data Approach

“…Thus, individuals will fall back on their previous savings in order to smooth current consumption. As observed by Elbadawi and Mwega (2000), Abu et al (2013), and Nwachukwun and Egwaikhide (2007), the lifecycle suggests that savings mainly depend on individuals' lifetime income growth. Thus, an increase in households' income significantly raises savings (Abu et al, 2013;Nwachukwun and Egwaikhide, 2007).…”

“…According to the lifecycle hypothesis, households build assets during Modigliani and Brumberg (1954) and Adewuyi et al (2010) assert that individuals who are middle-aged are able to build more assets. Elbadawi and Mwega (2000), Adewuyi et al (2010) and Abu et al (2013) affirm that middle age is usually the appropriate age in which an individual is able to pay off some debts that were accumulated during the earlier years, and saving for retirement is imminent. The final phase is when households reach retirement age and their incomes fall to zero (Abu et al, 2013).…”

“…Elbadawi and Mwega (2000), Adewuyi et al (2010) and Abu et al (2013) affirm that middle age is usually the appropriate age in which an individual is able to pay off some debts that were accumulated during the earlier years, and saving for retirement is imminent. The final phase is when households reach retirement age and their incomes fall to zero (Abu et al, 2013). Thus, individuals will fall back on their previous savings in order to smooth current consumption.…”

“…Kudaisi (2013) affirms that the random effect model considers the individual effect as latent of the random factor and formally integrates them into the residual term of a linear model (Albert, 2008). Likewise, the random effect model has some setbacks in the sense that it assumes that specific effects are unrelated to other explanatory variables (Kudaisi, 2013;Albert, 2008;Abu et al, 2013). We then use the Hausman test propounded by Hausaman in 1978 to choose between the fixed effects model and the random effects model.…”

“…As claimed by Horioka and Wan (2007) and Abu et al (2013), these models assumes that the saving-income growth nexus is unidirectional and that there is no relationship between individual specific time-invariant effects and the regressors. But in their studies, Balde (2011), Loayza et al (2000, Abu et al (2013), Sinha and Sinha (1998), Horioka and Wan (2007) found that income growth rate was endogenous related to savings. Although a rise in an individual's income might increase savings, higher savings may also result in increased income growth (ibid).…”