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This study is aimed at finding out the determinants of savings in a deregulated economy.  The Nigerian experience (1980-2010).  The following hypothesis was formulated to guide the study. Ho: Interest rate has no significant impact on national savings in deregulated economy of Nigeria. Ho: inflation rate has no significant impact on national savings in deregulated economy of Nigeria. Ho: Exchange rate has no significant impact on national savings in deregulated economy of Nigeria. The methodology adopted was the simple linear regression using the ordinary least square (OLS) technique. The analysis yielded some interesting findings that national saving which normally leads to investment are being determined by many factors such as interest rate, inflation rate, Exchange rate and many other variables not mentioned in this work. Though, some of these variables have negative relationship with national savings, they in one way or the other affect savings in a deregulated economy of Nigeria.  Based on the findings some recommendations were made which include the following: That effort should be geared by government towards encouraging savings which normally increase investment. Having been from the study that inflation rate has a negative relationship with national savings, government and her policy makers should always try to keep inflation rate as low as possible.  Interest rate should always be monitored so as to make sure that prospective savers are not discouraged from savings. Exchange rate as one of the independent variables and determinant of savings should always be monitored using appropriate monetary policy variable. Finally, further studies should be encouraged to find other economic variables not mentioned in this study that affect savings as well as investment in Nigeria.


Cover page                                                         i

Title Page                                                           ii

Approval                                                            iii


Acknowledgement                                                iv

Abstract                                                             v

Table of Content

Chapter One:  Introduction

  • Background of the Study 1
  • Statement of Problem                      5
  • Objective of the Study 6
  • Hypothesis of the Study 6
  • Scope of the Study 8
  • Significance of the Study 9

Reference                                                10


Chapter Two:  Literature Review

  • Theoretical Review 11
    • The Classical Theory 11
    • The Keynesian Theory 13
    • The Post Keynesian Theories        16
  • Empirical Literature        20
  • Limitation of the Previous Studies 21

References                                                      23

CHAPTER THREE:  Research Design and Methodology

  • Research Methodology 24
  • Model Specification 25
  • Method of Evaluation 26
  • Decision Rule 28
  • Data Requirement and Sources 29
  • Econometrics Software 30





  • Presentation of Empirical Results 31
  • Examination of the Algebraic Signs of the

Parameter Estimates                                        32

  • Statistical Test of Significance                           33
  • Evaluation of the Working Hypothesis 37
  • Policy Implication of the Result 39


  • Summary of Findings 41
  • Conclusion 42
  • Recommendations 43









1.1  Background of the Study

The basic function of savings in an economy is to mobilize fund for investment.  From 1960 to mid 1980’s witnessed the administration of low interest rate in Nigeria which was intended to encourage investment.

However, for sometime, precisely from 1980, the Nigerian economy experienced

its own share of recession that plagued the world economy and designing a long-run solution has continued to appeal to national government including Nigeria.  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, including savings which can be channeled to investment and thereby increasing employment, output and efficient financial resource utilization.

One of the arsenals of solution put in place by the Nigerian government is the structural adjustment programme (SAP).  The programme was designed to tackle the fundamental structural problems of the economy and was implemented for two years in the first stance.  However, at the end of two years in 1998, it became obvious that the structural problems could not be effectively addressed within the period of two years.  Hence consequent plans since then has been based on the policy framework of structural adjustment programme.

The main objectives of SAP were:

  • To restructure and diversify the productive base of the Nigerian economy.
  • To achieve fiscal and balance of payment viability over the period.
  • To lay the base for sustainable non-inflationary or minimal inflationary growth.
  • To lessen the dominance of unproductive investment in the public sector and intensify the growth potentials of the private sector.

Considering the objective of SAP above, a number of policy measures were put in place to achieve the objective.   But of the various policy measures so far adopted in achieving these objectives, three have direct relevance for the study.

They are:

  • The process of deregulating the economy including freeing the interest rate from administrative control
  • The establishment of a foreign exchange market as a way of achieving a realistic exchange rate for the naira.
  • Adoption of measures to stimulate production and broaden the productive base of the economy.

Critically examining these objectives of SAP, particularly the growth of domestic output, it is clear that savings as well as investment have important role play in realizing the objectives.  Consequently, an important test of efficacy of the measures adopted to promote SAP, is how well the savings variables have been positively influenced.

It was observed that the advent of SAP ushered in an era when fixed and low interest rate regime were gradually replaced by a dynamic interest rate regime were inherent rate is more influenced by market forces.  The policy shift de-emphasized direct investment stimulation through low interest rate and encourage savings mobilization by decontrolling interest rate.



  • Statement of Problem

Savings constitutes the main source of credit while investment constitutes the main demand for it.  Low savings in Nigeria economy has been said to be responsible for the low growth rate of the economy and is thought that one of the reasons for the low savings is the persistent increase in the transaction demand for money which reduces the level of savings.  This study tends to focus primarily on the relationship between savings and its major determinants income.  Although economic theory suggest the relevance of savings but only a few attempts has been made to thoroughly investigate this in the Nigeria economy.

Based on the background above and problems encountered, this study therefore intend to investigate the major determinants of savings in Nigeria particularly as it concerns income, interest  rate and other non economic variables such as in this regards, the Keynesian and classical theories of savings among others.

  • Objective of the Study

The broad objectives of this work is to investigate the determinant of savings in a deregulated economy.  Specifically, the study will find out:

  1. The impact of exchange rate on national savings in a deregulated economy of Nigeria.
  2. The effect of interest rate on National savings in deregulated economy of Nigeria.
  3. Determine the impact of Inflation rate on national savings in deregulated economy in Nigeria.


  • Hypothesis of the Study

Hypothesis 1: Ho

Interest rate has no significant impact on national savings in deregulated economy of Nigeria.



Alternate Hypothesis: H1

Interest rate has significant impact on national savings in deregulated economy of Nigeria

Hypothesis II:  Ho

Inflation rate has no significant impact on national savings in deregulated economy of Nigeria.

Alternate Hypothesis: H1

Inflation rate has significant impact on national savings in deregulated economy of Nigeria.

Hypothesis III: Ho

Exchange rate has no significant impact on national savings in deregulated economy of Nigeria.

Alternate Hypothesis: H1

Exchange rate has significant impact on national savings in deregulated economy of Nigeria.



  • Scope of the Study

Generally, the scope of the study is a focus on savings in the Nigerian economy.  Although the general area to cover is Nigeria economy, only the commercial banks and it’s agencies will be considered in the regression analysis because of the commercial banks has higher savings and deposit level.  The data for the study are annual and would be obtained from the federal office of statistics (FDS) and of the Central Bank of Nigeria (CBN) annual report and bulletin.  It will cover a period of eighteen years i.e. 1986 – 2010.








  • Significance of the Study
  1. It will be useful to those who want to go further into research on the determinants of interest rate.
  2. The savings is of vital importance of forecasting economic activities and development of policy response. So as to minimize the impact of disturbance.
  3. It will be useful to those who wish to know the factors that determine savings.
  4. It will be useful to economic growth agents, forecasters and policy markers.








Mankin N.G. (1997) Macroeconomics  New York, Work

Publishers Inc, Third Edition.


Motho L.E. (1986) Interest rate, Savings and Investment in

developing countries.  A re-examination of Mc-Kinnon Shaw hypothesis.  IMF Staff paper vol. 32 pp 90-116.


Okorie A.U. (1997) Interest rate policy, savings and

investment in Nigeria.  Central bank of Nigeria (CBN) Economic and Financial review Vol, 31, No. 1 pages 34-52.






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