The Long Run Determinants of Private Domestic Savings in Ghana: A Cointegration Approach

Abstract

The paper has explored the determinants of private savings in Ghana using the Phillips and Ouliaris (1990) residual-based tests for cointegration to determine the long run relationship between private savings and its determinants. Financial liberalization, per capita income and inflation were found to have a positive and significant relationship with private savings. The positive and significant coefficient of the fiscal deficit variable confirmed the Ricardian Equivalence hypothesis in Ghana. There is a strong willingness to save but the capacity to save is not very robust. Financial liberalization is recommended to be deepened to give financial institutions room for improved financial packages for increased savings. Growth should be pursued vigorously to improve incomes and hence people’s capacity to save. In spite of the results for fiscal deficits, government must keep its spending within sustainable limits and invest appropriately.

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