Determinants of Private Saving in Tanzania

Abstract

Saving plays a key role in economic growth and development by accelerating investments in the economy. However, private saving rates in Tanzania continue to be a blessing in disguise as the country recorded an average of 14.2% with a minimum of 3.5% over the past thirty three years. This actually shows that the minimum rate is still very small however on average the figure is impressive. This study empirically investigates the determinants of private saving in Tanzania using secondary annual time series data for the period 1980 – 2012, with the objective of establishing the factors that affect private saving in the country and suggest policy measures that can help accelerate the rate of private saving. To be able to identify the factors that affect private saving in Tanzania, the study employed OLS and Error correction model fitted in annual time series data. The results indicate that real GDP per capita and external savings in the long-run are the only variables that affect private saving. However, in the short-run external savings only was found to be the key determinant of private saving. In addition, it was found that economic growth in Tanzania causes private savings. Therefore, the study recommends the improvement in economic base as well as export promotion as a measure of reducing the current account deficit that has an adverse effect on private saving in Tanzania.