Determinants of Saving Behavior in Pakistan

Abstract

This study is an attempt to investigate the short run and long run determinants of National Saving behavior of Pakistan for annual time series data from 1981 to 2010. The study applies Augmented Dickey Fuller (ADF) and Auto Regressive Distributed Lag (ARDL) Model under the framework of bound testing approach. All the variables used in the study are taken as percentages of gross domestic products (GDP) and annual growth rate. GDP growth rate is found to be stationary in level and the remaining variables are first difference stationary in this study. The results show that in the short run and long run, GDP growth rate, exports and worker’s remittances have positive significant impact on national savings of Pakistan. On the other hand government investment, total debt services and inflation rate have negative significant impact on national saving of Pakistan both in the short run and long run. The value of error correction mechanism or speed of adjustment is found highly significant. The empirical results fully support the previous studies as well as theories about national savings and its determinants, yet studies having more than 30 observations and incorporating additional variables have the possibility to improve these results further.