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ABSTRACT
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.
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
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.
1.2 STATEMENT OF THE PROBLEM
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 government.
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.
1.4 STATEMENT OF THE HYPOTHESIS
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.
1.5 SIGNIFICANCE OF THE STUDY
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.
1.6 SCOPE AND LIMITATIONS OF STUDY
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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