Macroeconomic determinants of savings in Uganda

Abstract

This study investigated macroeconomic determinants of savings in Uganda using annual time series data for the period 1983 to 2016. The main approach used was the ordinary least squares. Presence of long run equilibrium among the series was tested using the Johansen cointegration test. The error correction approach was then used to estimate the speed of adjustment to deviations from long run equilibrium. The empirical results show that there were two co-integration equations showing the long run relationship amongst gross domestic saving as percentage of real GDP, real growth in per capita income, broad money growth, current account balance and inflation. More specifically, long run determinants of savings are real growth in per capita income and broad money growth and both depress savings. On the other hand, the short run determinant of savings is real growth in per capita income. Moreover, it was established that while gross domestic savings may drift apart in the short-run, the disequilibrium between the variables adjusted at about 23 percent towards their long-run equilibrium annually. The study recommends the government of Uganda to implement policies that increase people’s incomes through allocating resources to productive sectors and lowering inflation rates which would help improve real incomes.