Aggregate Saving Behavior in Africa: A Review of the Theory and the Existing Evidence with a New Empirical Results

Abstract

The objective of this paper is to review the theoretical and empirical literature on aggregate saving behavior and to examine the available evidence in order to draw lessons that are particularly relevant for African economies in general and Ethiopia in particular. It attempts to document the main theoretical linkages of saving to major macro-economic aggregates and the factors that determine saving at the micro-economic or household level, examine the existing empirical evidence, present a new estimated result conducted in the context of this study.  The literature as well as the empirical finding in this study shows that saving is positively related to income level or growth, rate of investment, and short-run changes in terms of trade. On the other hand, more it is negatively related to macroeconomic instability, foreign aid, and age-dependency ratio.