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This paper examine the determinants of savings in a deregulated economy in the light of the Nigeria experience during the period 1986-1993 and 1994- 2004. That is during SAP and Post SAP era respectively. The methodology involves the use of survey method for data  collection  and  utilized  simple  and  multiple  Regressions  for  analysis.  These techniques were used to test the impact of the SAP policies on savings habit of Nigerians DURING and AFTER SAP era. The study also utilized the correlation analyses to

establish the extent and nature of relationship between the following: Real Per Capita Income and Savings; Investment and Saving; Total Domestic credit, Real Interest Rate and Savings; and consumption and savings in a deregulated economy. Secondary data used were from official sources such as central Bank of Nigeria (CBN); Annual Reports, the CBN. Statistical bulletin for various years and Nigeria Deposit Insurance Cooperation (NDIC).Meanwhile, it is found that the saving rate rises with both the level and the rate of growth of deposable income and the magnitude of the impact of the former is smaller than that of the latter.  The real interest rate on bank deposits has a significant positive impact, but the magnitude of the impact is modest. Also, it was found that the magnitude of the impact and foreign Domestic investment actually contributed significantly to the savings rate of Nigeria’s economy. Consumption on the other hand, did not have significant   impact   on   the   savings   rate   of   Nigerians   during   the   period   1986-

2004Moreover, in the course of the study, it is noticed that public saving seems to crowd out  private  saving  but  less  than  proportionately  suggesting  that  public  policy  can influence the national saving rate. Among the other variables considered, the spread of banking facilities in the economy seem to have a positive impact on savings and with the Foreign Domestic Investment as proxy for economic liberalisation having a wide impact on the savings habit of Nigerians. We observed that there was a low trend rate of savings during the SAP era as against the positive feedback in Post SAP era. How ever, government should avoid drastic policy reversal but rather, it should concentrate efforts in fine-tuning the existing policy measures which will not only compel prudence on the part of the major operators in the financial market but also will stimulate savings behaviour of all economic agents. This will go a long way at enhancing funds’ mobilization in the country.




Banks are statutorily vested with the primary responsibility of financial intermediation in order  to  make  funds  available  to  all  economic  agents.  The  intermediation  process involves moving funds from surplus sectors/units of the economy to deficit sectors/units (Uremadu, 2002;Nnanna, Englama and Odoko, 2004). The extent to which this could be done depends on the level of development of the financial sector as well as the savings habit of the populace. The availability of investible funds is therefore regarded as a necessary  starting  point  for  all  investments  in  the  economy  which  will  eventually translate to economic growth and development (Uremadu, 2006).

In Nigeria, Nnanna, Englama and Odoko(2004) are of the view that the level of funds mobilisation by banks is quite low due to a number of reasons, ranging from low savings deposit rate to the poor banking habit or culture of the people. According to them, another disincentive to funds mobilisation is the attitude of banks to small savers and this depends on the interest rate policy of the government.

Interest rate policy is among the emerging issues in current economic policy in Nigeria in view of the role it is expected to play in the deregulated economy in inducing savings, which can be channelled to investment and thereby increasing employment output and efficient financial resource utilization. According to Okorie (1993), in his review of interest rate policy in Nigeria stated that performance of interest rate policy is to directly stimulating investment on the one hand, and in mobilizing financial savings and their utilization in investment on the other.

Moreover, McKinnon and Shaw (1973), view administered low interest rate as detrimental to increases savings and hence investment demands. They argued that high interest rates induce savings, which can be utilized in investment.

Thus, there are two transmission channels through which interest rates affect investment. They relate to  investment  as  cost  of capital.  Also,  interest  rate increases  per capita income, according to Uremadu(2006b), increase in per capita income will impact positively or encourages financial savings, which can be invested (self financed) or lent out to borrowers as loans (external finance).

Many  studies  have  investigated  these  transmission  mechanisms,  which  tallies  with interest rate policy regimes articulated in Nigeria prior to and after the 1986 economic deregulation.

Rama  (1990)  investigated  the  theoretical  and  empirical  determinants  of  private investment  in  developing  countries  and  identified  macroeconomic  and  institutional factors, such as financial repression, foreign exchange shortage, lack of infrastructure, economic instability, aggregate demand, public investment, relative factor prices and credit availability as important variables that explained private investment, Rama(1990) noted that empirical results were diminished by errors in measurement of economic variables and research methodology. Balassa (1989) made similar observations in his

review of the effects of interest rates on savings in developing countries. In an effort to examine the response of investment to interest rate changes during stabilization programmes, Hall (1977) discussed the view that stabilization policies affect short term interest rates while long-term rates are more responsive to investments. Theoretically, he concluded that since short-term interest rates are the appropriate rate used in calculating cost of capital in investment decisions, the relationship between term structure of interest rates and investment needs empirical classification.

The observed level of savings in most developing economies especially Nigeria which is a manifestation of low productive base, may have become endemic due to the prevailing high degree of repressiveness of their respective financial sectors. With financial repression, a country will experience a shortfall amongst domestic savings, consumption and desired level of investment. In order to remove that bottleneck, Nigeria embarked upon the reformation of her economy, which is witnessed in the introduction of the Structural Adjustment Programme (SAP) in 1986. This point will be better highlighted.


Saving is one of the most important macroeconomic variables in any economy because of its effect on the rate of capital accumulation as well as productivity and its impact on the  degree  of  dependency  of  a  nation  on  foreign  capital  and  foreign  ownership  of domestic assets.

In recent time, economic analysts have been using a country’s absolute level of saving and its level relative to that found in other countries as a yardstick for measuring the capability of a country to achieve sustainable growth and development on the one hand, and for measuring the difference between the rate of growth in one country and the other. “Raising our personal savings rate is important if we are again to enjoy rapid productivity growth and success in international competition. It is no accident that Germany and France, with national savings rate twice that of the United States, have had twice as rapid productivity growth while the Japan with a savings rate three times that of Nigeria has enjoyed three times as great a productivity growth rate over the last fifteen years.

Meanwhile,  the  basic  reasons  for  the  introduction  of  SAP  are  to  improve  saving behaviour of the people through deregulation of interest rate and exchange rate liberalization. These two principles are related and also affect the decision to consume, save and invest. Thus, the reform of the financial sector is given greater attention in the economic adjustment programme because of the critical  role these variables play in “stimulating and sustaining economic growth. However, the natures of the policy and

institutional reform processes have created serious repercussions (negative or positive) on the nation’s economy.

Afolabi and Mamman (1994) investigate the impact of deregulation on the marginal propensity to save in Nigeria.   The broad objective of the study is to determine the composition effect of structural adjustment policies including deregulation on saving behaviour and hence estimates the extent to which adjustment reforms have promoted or reduced savings in Nigeria.  Using the error correction model, the authors estimate the equilibrium value of the marginal propensity to save before the implementation of SAP at 0.12 and 0.23 during the SAP period, giving an increase of 0.11.

Afolabi and Mamman (1994) therefore concludes that the policies perused under the structural adjustment programme particularly those related to funds mobilization have had positive effect on savings behaviour in Nigeria.

In a subsequent study by Nyong (1997) following the Afolabi and Mamman (1994) paper, Nyong’s findings contradict the authors’ results since these results are mixed.  It behoves on academics and policy makers to know the exact behaviour of savings during the SAP period and Post SAP period extending to 2004.  In particular, Nyong finds that the savings rate had not increased during SAP but rather fell by 0.26% during the SAP period.  This study will extend the previous studies to 2004 to know whether the available results are still correct.


The broad objective is to show the composite effect of the various policies pursued under

SAP on saving attitudes of the economic agents in the country.

Based on the aforementioned above, the objective of this study in specific terms includes: (i)        To determine the impact of National Income, interest rate and Bank Branches

on the Savings habit of Nigerians within the period 1986-1993 and 1994-2004.

(ii)       To determine how savings contributed towards economic growth in Nigeria within the period 1986-1993 and 1994-2004.

(iii)     To find out if national saving contribute to investment and ultimately economic growth (1986-1993) and (1994-2004).

(iv)      To find out if Consumption have significant impact on the savings habit of

Nigerians within the period 1986-2004


A research question is a statement that identifies the phenomenon to be studies. This research work will be based on those research questions which will help in creating an insight into the problem under study, these question’s given the objective(s) of the study are:

(i)        Of what significance is interest rate on the saving habit of Nigerians?

(ii)       What is the impact of National Income and Bank Branches on saving behaviour of people within the period 1986-1993 and 1994-2004?

(iii)     What is the impact of Foreign Direct Investment and Total Domestic Credit on the economic growth in Nigeria within the period 1986-1994 and 1994-2004?

(iv)    Does national saving contribute towards investment and ultimately economic growth?

(v)       Is there significant impact of consumption on savings of Nigeria within the period 1986-2004


The following working hypotheses will serve as aid jointly in answers to the questions raised above, and on which basis data will be collected, analysed and interpreted. These hypotheses in specific form are:


Ho: There is no significant impact of Real Per Capita Income, Real Interest Rate and Bank Branches on the National Savings habit of Nigerians within the period

1986-1993 and 1994 – 2004.

Hi: There is  Significant impact of Real Per Capita Income, Real Interest Rate and

Bank Branches  on the National Savings habit of Nigerians within the period

1986-1993 and 1994 – 2004


Ho:      Savings  determinant  did  not  contribute  significantly  towards  investment within the period 1986 – 1993 and 1994 – 2004

Hi:    Savings did contribute significantly towards investment within the period 1986 – 1993 and 1994 – 2004.


H0:      Total Foreign Domestic Investment and Total Domestic Credit did not have a positive impact on saving habit of Nigeria within the period SAP and Post SAP.

H1:  Total  Foreign  Domestic  Investment  and  Total  Domestic  Credit  did  have  a positive impact on savings habit of Nigeria within the period, SAP and Post SAP.


H0: Consumption did not have significant impact on the savings habit of Nigerians within the period 1986 – 2004

Hi: Consumption did have significant impact on the savings habit of Nigerians within the period 1986 – 2004


Saving is an important part of any sustainable economy development and growth. Countries which have high savings rate automatically will have a rapid economic growth and development. Historical evidence and empirical analysis indicates that a high level of domestic saving will accelerate the rate of capital formation, enhance productivity and consequently improve the standard of living of the general populace. Meanwhile, this study will provide resource materials to all students of Banking and Finance, Administrators, practicing consultants etc.

By the time this study is completed, adequate awareness would have been created as to the effects of deregulation on the savings habit of Nigerian. It is hoped that the project will assist the policy makers of the nation-The Executives council, the legislators and the judiciary, including the financial institutions to accurately fix their interest rate level that will not be too strong to the saving behaviour of the Nigerian economy.

Meanwhile, the study will be concluded with a result about whether there is a composite effect of savings in a deregulated economy, a case of Nigeria economy.

Finally, on completion, the study will serve as a fulfilment of a requirement for the award of Master of Science (M.Sc) Degree in Banking and Finance.


The study of this research topic is limited to sample size of 19 years i.e. 8years SAP and

11years post-SAP (1986-1993 and 1994-2004). Data were presented in tabular, bars and graphic forms and analysed using the simple and multiple linear regression models. Data were run using the Microsoft Excel packages-the Statistical Package for Social Science (SPSS).


The scope of this research work covers the Nigerian economy-National saving rate comprising the public and private domestic savings. Public savings include savings by general government and savings by the public sector corporations.


Terms as used here imply those key words, which in the course of the research work are employed by the researcher in conveying the technical/operational meaning of what is intended. Prominent among these  as contained in this study include:

(i)        SAVING: The portion of disposable income not spent on consumption goods but accumulated or invested directly in capital equipment or in paying off a home mortgage or indirectly through purchase of securities. According to Umoh,2003 and Uremadu, 2005),”saving is that part of the disposable income of the porie which has not passes into consumption”. Savings = Income-Consumtion.

(ii)      INTEREST RATE:  It is defined according to Lipsey, Courant, Doughas and Steiner (1993. 473) as “the price that is paid to borrow money for a stated period of  time  and  is  expressed  as  a  percentage  amount  per  dollar  borrowed.  For example, an interest rate of 12 percent per year means that the borrower must pay N0.12 per year means that the borrower must pay N0.12 per year for every one naira (N1.00) that is borrowed.

(iii)      TERMS OF TRADE:  Lipsey et al (1993.779) opined that “the terms of trade measures the quantity of imported good that can be obtained per unit of goods exported and are measured by the ratio of the price of exports to the price of imports.

(v)      NOMINAL INTEREST RATE:      It  means  the  amount  of  money  paid  for making loan available. Example if you pay someone else N108 in one year’s time, N100 will be repayment of the amount of the loan (which is called the principal) and N8 will be payment of the interest.

(vi)      REAL RATE OF INTEREST: This measures the real return on a loan, in terms of purchasing power. If the price level remains constant over the year, then a real rate of interest that your friend earns would also be 8 percent, because she can buy

8 percent more goods and services with the N108 that you repay her than with the N100 that she lent you. However, if the price level rises by 8 per cent, the real rate of interest would be zero, because the N108 that you repay her buys the same quantity of goods and services as the N100 that she originally gave up.

(vii)     MARGINAL PROPENSITY TO CONSUME (MPC):    It  relates  the  change in consumption to the change in disposable income that brought it about, that is MPC = Change in C/Change in Yd.

Change  in  C  =  Change  in  consumption  while  change  in  Yd  =  change  in disposable income.

(viii)   MARGINAL PROPENSITY TO SAVE (MPS):  This  relates  the  change  in total desired saving to the change in disposable income that brought it about: MPS

= Change in S/ Change in Yd. Change in S = change in saving. Note APC = C/Yd, C = consumption.

This material content is developed to serve as a GUIDE for students to conduct academic research



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