Factors Determining Gross Domestic Savings in Kenya

Abstract

The rate of growth of gross domestic savings in Kenya has been declining over the years. This is in line with the low economic growth rate and high rate of inflation facing the country. The aim of the study was to establish the factors determining gross domestic savings in Kenya by extending the analysis to include technology as a potential determinant of savings in Kenya. Co-integration and Vector Error Correlation Model were used to explore the effect of the factors determining Gross Domestic Savings in Kenya using annual time series data covering the period 1980-2014. The results show that coefficient on technological advancement in terms of internet users, domestic savings provided by financial institutions and GDP growth rate is positive and statistically significant at 5% level of significance. This implies that an increase in 1% of the number of internet users, amount of domestic credit provided by financial institutions and the GDP growth rate leads to a 0.1289%, 0.3207 % and 0.3124 % increase in domestic savings respectively. However, coefficient on inflation rate was negative and statistically significant at 5% level of significance implying an increase in 1% of the inflation rate leads to a 0.1223% decrease in domestic savings. Finally, the dependency ratio, rate of interest and technological advancement in terms of mobile cellular subscriptions were found not to be significant factors. The research concluded that the rate of growth of gross domestic savings determines the extent of investment in an economy and this plays a key role in driving the economic growth agenda. Recommendations were made to boost and encourage adoption of technology in terms of internet access, promote economic growth, ensure growth in the financial sector and to reduce the level of inflation.