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This study investigates the core leading factors that reduce savings
in Nigeria between 1980 -2010 using ordinary Least Square (OLS)
econometric framework, which will enable us proffer solutions for
the improvement of savings in the economy, which is also an
important component for economic development in any country.
Base on data collected, it is discovered that savings output in
Nigeria during the period was unsatisfactory but was later
discovered as a necessary factor for economic development and
growth. This research shows the significance of savings which is
achieved when saving habits is greatly considered by public private
and government. The empirical results show a negative influence of
trade openness (TDO) on aggregate savings. The work therefore
submits that effort should be geared towards improving export
capacity by improving productivity in industrial sector, which
provide employment and increase per capital income as a bid to
accelerate savings. And since interest rate signals a positive
influence on savings in Nigeria, there should also be an intensified
impact on real rates, spread and financial liberalization and or
financial developing in Nigeria.
Title page – – — —– – – – -i
Approval page – – – – – – – – – -ii
Dedication – – – – – – – – – -iii
Acknowledgment – – – – – – – – -iv
Abstract – – – – – – – – – – -v
Table of content – – – – – – – – -vi-x
1.0 Introduction
1.1 Background of the study – – – – – – 1
1.2 Statement of the problem – – – — – 6
1.3 Objectives of the study – – – – – – 8
1.4 Statement of Hypothesis – — – – – – -8
1.5 significance of the study – – – – – – -8
1.6 Scope and limitation of the study – – – – -9
2.1 Theoretical literature – – – – – – 10
2.1.1Development of saving in Nigeria – – – – 10
2.1.2Theoretical Review – – – – – – – 13
2.1.30 Determinant of savings – – – — – 19 Income – – – – – – – – -19 Wealth – – – – – – – – -20 Inflation – – – – – – – – 20
7 Foreign Savings – – – – – -21 Demographic Variables – – – -22 Growth = – – – — – – – -22 Financial Development – – – – – -23 Interest Rate – – – – — – -24 – – – — — — -25
2.1.4 Conclusion – — – – – — – – 25
2.2 Empirical Review – – – – – — -26
2.3 Limitations of the Precious Studies – – – – -26
4.0 Presentation of Model Result – – – – – -38
4.1 Result Summary – – – – —- – – -38
4.2 Economic Interpretation of result – – – – -38
4.2.1Real Gross Domestic Product – – – – -39
4.2.2Trade Openness – – – – – – – 39
4.2.3 Interest Rate – – – – – – -39
4.2.4 Net Capital Inflow – – – – – – – -39
4.3 Evaluation Based on Economic Criteria – – – -40
4.4 Statement Criteria (First Order Test) – – – — 40
4.4.1. Coefficient of determination (R2) – – – 40
4.4.2 The T- Test – – – – – — – -40
4.5 Econometric Criteria (Second Order Test) – – – 40
4.51 Normality Test – – – – – – — – 42
4.5.2 Test for Autocorrelation – – – – – – 42
4.5.3 Test for Heteroscedasticity – – – – – -43
4.5.4 Test for Multicolliearity – – — – – – -45
5.1 Summary of Findings – – – – – — – 46
5.2Conclusion – — – – – – — – 47
5.3 Plock Recommendations – – – – – 47
Bibliography – – – – – – – – -49
Appendix – – – —– – – – – – -52
Financial institution, market, regulator and instrument all
comprises a set of complex and closely interconnected financial
system, proving financial services in an economy, such services
includes mobilization and allocation of resources, distribution of
investment funds among firms, financial intermediation and foreign
exchange transactions.
The Nigeria financial system can be categorized into two via: the
formal or organized and informal or unorganized financial system,
the banks and non banks financial institutions make up the
organized financial system while the unorganized sector comprises
of indigenous bankers local money lenders‟ (ISUSU), shop-keepers
or traders, merchants, landlords, saving associations, friends and
relatives etc. the system is poorly developed, limited economics
information, defective system of according are not integrated into
the formal financial system, but very important to the Nigerian
financial system. Capital formations, buying and selling of bonds
and securities, creation of new assets and liabilities, executing
monetary and credit policies of the central bank etc.
Are the roles and functions of financial system geared towards
economic development of an economy? Patriotic researchers and
policy makers have observed a declining savings rate in Nigeria over
the past decades; this is due to the critical importance of saving for
the maintenance of strong and sustainable growth in the world
economy particularly in Nigeria.
A sound, healthy and reliable financial system relates to savings
mobilization and efficient financial intermediation roles:
First, reduces hoarding and help spread the risk between
household and firms.
Second, lowers interest rates thereby bringing about stability in
capital market.
Third, they create liquidity in the economy by borrowing short-term
and lending long-term.
Fourth, disseminate information between ultimate lenders and
ultimate borrowers thereby mobilizing savings from surplus units
and channeling them to deficit units through the help of financial
techniques, instruments and institutions. Fifth the intermediaries
promote development investment.
The Nigerian financial system comprise the regulatory /supervisory
authorities, bank and non- bank financial institutions. As at the
end of 2007, the system comprised of the Regulatory/ Supervisory
authority, the Central Bank of Nigeria (CBN), the Nigerian Deposit
Insurance Corporation (NDIC), the Securities and Exchange
Commission (ESC), the national Insurance Comedienne (NAICOM),
the National Pension Commission (NPC), and the Federal Mortgage
Bank of Nigeria (FMBN).the CBN is the principal regulate and
supervisor in the money market, consisting of a Deposit Money
Banks (DMBs), Discount Houses, the Peoples Bank of Nigeria and
Community Banks.
The CBN exclusively regulates the activities of finance Companies
and promotes the establishment of specialized or development
financial institutions. The SEC is the apex regulatory/ supervisory
authority in the capital market. The Nigerian Stock Exchange (NSE)
is a self-regulatory or user-regulatory institution. The issuing
Houses, Registrar and stock brokers, who also interact with the
money market, complex the chain in the capital. The Federal
Ministry of Finance, together with the CBN constitutes the
monetary authorities and share control over Bureau de change. The
NAICOM is the regulatory authority in the insurance industry, while
the FMBN regulates mortgage finance activities in Nigeria. Saving is
a sacrifice of current consumption that provides for the
accumulations of capital, which in term provides additional output
that can potential be used for consumption in the future
(Gersovitz1988). In other words, savings is the difference between
current earnings and consumption. It has also been defined as
“deferred consumption” or part of income, which is not spent.
Savings is described as a financial assets accumulated by the
public- both government and private agents in the organized
financial system. To expand financial savings involves shifting of
funds from the personal and household sector to the business or
corporate sector which in turn, leads to greater investment, income
growth, employment and capital formation: which cannot be
achieved without increasing the rate of savings, Nigeria‟s saving
still falls below the requirements of its financial system due to low
per capital income, under- investment in productive instruments,
and investment in unproductive channels, e.g. gold, jewelry, income
inequalities and demonstration effect Etc. to remedy this
problems depend on the level of development of the financial sector
mentioned above as well as the savings habit of the citizenry. The
availability of investible funds can be a starting point for all
investments in the economy, which will eventually translate to
economic growth and development (Uremadu, 2006). The
relationship among saving, investment and growth has historically
been very close; hence, the unsatisfactory growth performance of
several developing countries. Example: Nigeria has been attributed
to poor saving and investment. This poor growth performance has
generally led to a dramatic decline in investment. Domestic saving
rates have not fared better, thus worsening the already uncertain
balance of payments position (Chete, 1999). The role of savings in
the economic growth of any country cannot be overemphasized.
Conceptually, savings represents that part of income not spent on
current consumption. Instructions in financial sector like deposit
money banks (DMBs)/commercial banks mobilize savings in a
economy, the deposit rate must be relatively high and inflation rate
stabilized to ensured a high positive real interest rate, which
motivates investors to save from their disposable income. In Nigeria
Nnann, Odoko and Englama (2004) are of the view that the level of
funds mobilization by financial institutions are quite low due to a
number of reasons, ranging from low savings deposits rates of the
poor banking habit or culture of the people.
According to them, another impediment to funds mobilization is the
attitudes of banks to small savers. Another Limitation to savings
mobilization is the fact that the concentration of banks and their
offices are biased in favor of urban areas. Among the reasons for
this, is the fact that the established banks under- rate the volume
of saving to be mobilized and channeled into productive investment
in the rural areas. It is often argued that since the rural economy
operates at a near subsistence level, there is very little that can be
squeezed out of income and consumption. Because of this, it has
not been realized that large volume of idle funds, though in small
units per individual exist in the rural areas. In Nigeria, there is
basically lack of incentives to savings which had adversely affects
savings. Some of these factors include; poor banking habits,
attitudes of banks to small savers, poor orientation, unemployment,
instability in the political system, corrupt taxation system,
instability in the banking system, etc. one of the economic growth
and development in Nigeria.
In Nigeria, there is lasting need of further efforts especially in
mobilizing small savings in both urban and rural areas, and the
process of financial intermediation itself, knowing fully well the
saving culture in Nigeria is very poor relative to other developing
economics (Uremadu, 2006). In this respect, Commercial banks in
performing their roles, was found to have potential scope and
prospects for mobilizing financial resource and allocating them to
investment. But given the problems inherent in the formal sector,
the informal savings associations, if properly developed would not
only facilitate the financing of economics development but would
also contribute to the development of incomes, and that
necessitates the need to put in place a coherent economics policy
that will be capable of providing the much needed enabling
environment and also there is an urgent need to encourage
Nigerians to change their current attitude towards savings, thereby
placing the right saving culture by institutions and regulatory
agents who influence the decisions of households, firms and
As pointed out earlier, since national policy is it macroeconomic or
microcosmic generates variables which could influence the
propensity of economics and financial actors to save. This research
work could attempt to examine from policy perspectives, the
magnitude and direction of such variables as: interest rate, income,
growth, urbanization, foreign (aid) sector, fiscal policy etc, on
savings in Nigeria.
Therefore, this research question will try and answer the following:
1. What are the factors that reduce savings in Nigeria?
2. What impact does factors reducing saving have on aggregate
savings in Nigeria?
1.3 OBJECTIVES OF THE STUDY: In the light of the above
problems, the objectives of this research work include:-
* To ascertain those factors that reduces savings in Nigeria.
To determine the impact of the factors that reduces saving on
aggregate savings in Nigeria.
The hypotheses to be tested in this research work are:
a. Ho; the factors that reduce saving has no significant impact on
aggregate savings in Nigeria.
b. H1; the factors that reduces saving has a significant impact on
aggregate savings in Nigeria.
This research work will be of immense help to [policy formulators
particularly those involved in the development of the Nigerian
economic agenda. It will help them in choosing the appropriate
policy in the macroeconomic policy management, particularly those
affecting saving in Nigeria. Also, through the findings and
suggestions of this research project work, a greater awareness will
be generated in the financial arena or sectors so as to appreciate
the effects being carried out by the federal; government of Nigeria
through the Central Bank of Nigeria and Federal Ministry of
Financial in improving the policies affecting positive saving in
recent years. Finally, this study will assists in a modest way to
increasing student‟s knowledge on the practical and real- life
situation of the theories they learn in the classroom.
The scope of this study is to estimate and evaluate the factors that
reduce savings in Nigeria (1980-2010).
The Limitations are constrained to lack of fund, human error and
limited time frame, which imposed difficulties when serious attempt
to effect a general in – depth towards the study of the factors that
reduce savings in Nigeria.


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