WOLAITA SODO UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF ECONOMICS

DETERMINANTS OF URBAN HOUSEHOLD ON THE HABIT OF SAVING

(IN CASE OF ENEFISE SAR MIDIR WOREDA, EAST GOJJAM ZONE, )

TADELE NIGAT

[Link]:- UGR/51511/13

ADVISOR: BIRHANU HANKAMO (MBA)

A PROPOSAL SUBMITTED TO DEPARTMENT OF ECONOMICS IN

PARTIALFULFILLMENTOF THE REQUIRMENT FOR THE BA DEGREE IN
ECONOMICS

WOLAITA,ETHIOPIA

MAY,202
 Table of Contents
page
ABBREVATION AND ACRONOM.........................................................................................I

CHAPTER ONE.........................................................................................................................1

INTRODUCTION......................................................................................................................1

1.1 Background of the Study..............................................................................................1

1.2. Statement of the problem.............................................................................................2

1.3 Research Objectives......................................................................................................4

1.3.1 General objective of the study...........................................................................................4

1.3.2 Specific Objectives............................................................................................................4

1.4 Research Questions.......................................................................................................4

1.5 Significance of the research..........................................................................................4

1.6 Scope and limitation of the Study.................................................................................5

1.7 limitation of the study...................................................................................................5

1.8. Organizations of the Research.....................................................................................5

CHAPTER TWO........................................................................................................................6

LITERATURE REVIEW...........................................................................................................6

2.1 THEORETICAL LITERATURE REVIEW.................................................................6

2.1.5 Theoretical framework...............................................................................................8

2.1.6 Solow-swan growth model...............................................................................................9

2.1.8 H-D model.........................................................................................................................9

2.1.10 John Maynard Keynes...................................................................................................10

2.2 EMPIRICAL LITERATURE REVIEW.....................................................................12

2.3 research gap................................................................................................................19

CHAPTER THREE..................................................................................................................20

RESEARCH METHODOLOGY.............................................................................................20

3.1. Description of the study area.....................................................................................20

3.2. Sources and types of data..........................................................................................21

3.3 Method of data Collection..........................................................................................21

I
 3.4. Sampling techniques and sample size determination................................................21

3.5 Methods of data analysis............................................................................................23

3.6 Econometric model specification...............................................................................23

3.7. Description of the variables.......................................................................................24

3.7.1 Dependent variable..........................................................................................................24

3.7.2 Independent Variables.....................................................................................................24

3.6 Time plan and budgeting............................................................................................25

3.6 Budget.........................................................................................................................26

REFERENCE...........................................................................................................................27

II
ABBREVATION AND ACRONOM

CSA= Central statistical agency

DECSI=Debit Credit and Saving Institution

GDS=Gross Domestic Saving

GNP=Gross national product

HH=House hold

MOFED=Ministry of Finance and Economic Development

NGO =non-government organizations

NBE= National Bank of Ethiopia

SDPRP=sustainable development and poverty reduction program

WB=World Bank

III
CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

Historically in the world economic activities takes place in the informal sector. While
many households have notable savings, “the problem is that these are being held in
the non- financial form”,([Link] told Africa renewal).”These are being significantly
channeled in to productive investments.” Many African countries still keep most of
their saving in livestock, stockpiles of goods for training, grain, jewelry or
construction materials. Data are limited, but some expert estimates that about 80
percent of all households assets in rural Africa are in non-financial forms. To tap in to
such assets, it is necessary to” introduce new financial products or instrument that
respond to the saving needs of households”, says Mr. gay of UNICTAD. Saving
products that” permit easy accessibility” and allow for “small transaction at frequent
intervals” would encourage households to shift the formal system.(Wail, U.T 2014)

Sub-Saharan African countries have lowest saving rate in developing countries. While
figures vary from country to country, grass domestic savings in the region averaged
about 18 percent of gross domestic product in (2005) compared with 26 percent in
south Asia and nearly 43 percent in east Asia and pacific countries according to (WB)
estimates .(2014)

In some countries those rates are even on the decline. South Africa alone accounts for
almost 40 percent of sub- Saharan Africa total GDP. Yet in 2006 the country’s gross
domestic saving rate declines to 13 percent from 26 percent in the early 1980s. There
are many reasons for African low saving rates, including inadequate financial service.
Physical distance from banking institutions and high minimum deposit and balance
requirements mean that the majority of the population does not have bank accounts.
(Economic report on Africa) and ( prinso,j.w 2014)

In east Africa Ethiopia, Uganda and Tanzania each have less than one bank branch
per every 100,000 people. The ratio is better for some southern African countries.
Namibia has more than four, Zimbabwe more than three and Botswana nearly four.

1
Rising domestic savings as percentage of gross domestic product sub- Saharan Africa
17.8% and north Africa 21% from 1998-2001, sub-Saharan Africa 20% and north
Africa 25% from 2002-2006 and 22.2% for sub-Saharan and 30% north Africa in
2007 (UN African renewal form data in UN economic commission for Africa.
Economic report on Africa. (2008)

The three regimes of Ethiopia during the study period also show that the average
saving rates was 13.8 percent of GDP during the period from 1970/71 to1973/74, 7
percent from 1974/75 to 1990/91 and 7.3 percent from 1991/92 to 2010/11. This
classification implies that though saving was relatively good during the imperial
period. It declined to lower percent during derge and current régimes of Ethiopia.
Moreover, available data from World Bank report (2011) shows that the average
saving rate of Ethiopia was very low by any standard. For instance, when compared
with the average saving rates of sub-Saharan African countries between the period
1980/81 and 2010/11, average domestic saving rates in Ethiopia was only 8.6 percent
of the GDP. However, during the same period, the average for sub-Saharan African
countries was 17.2% of GDP. This implies how much the domestic saving rates of
Ethiopia too much low even by sub-Saharan Africa standard. Chawo, N.A (2014) and
MOFED (2014)Even though, this study will have provided good information about
saving from the above introduction part of micro and macro level of saving their also
a number of study would conduct on saving in different time periods in both
developing and developed countries. Most of these studies would asses determinants
of household saving at national and regional level and there were few studies were
conducted at household level.

So this paper will study the determinants of household saving at micro level and what
the factors that affect the ability of individual towards saving in Amhara region in
case of sar midir woreda(meritolemariam city).

1.2. Statement of the problem

Saving by the household sector is defined as that part of current income, after the
payment of taxes, that is not consumed or postponed as part of household current
consumption. Likewise, saving includes current payments made in the form of a
reduction in household liabilities, such as repayment of capital on a loan used for

2
housing, and consumer durable (Prinsloo, 2000). Saving is that part of a disposable
income of a certain period that has not been allocated to consumption (Umoh, 2003;
Uremadu, 2006). Thus, saving encompasses the residual income which to be invested
either for income generation or to meet some future planned or uncertain [Link]
issue of saving has been the main concern for a number of scholars. Even
though;many theoretical as well as empirical studies were conducted, there were no
clear relationships defined by those scholars about the relationship between household
saving and other many economic and sociodemographic [Link] savings
are vital as a supply of investment funds because financial

developments have significant implications for economic growth in developing

countries (Abdelkhalek, Arestoff, Freitas, & Mage, 2009). Development economics
has for several decades renowned the importance of the mobilization of domestic
savings for economic growth in developing countries. The positive relationship
between saving and/ or investment and economic growth has long been an established
fact in economics (Ahmad, Atiq, Alam, & Butt, 2006).

The only variable that previous researchers have had similar relationship was income
of the household and household saving. The relationship of income and saving was
positive and significant as the results of economic theories as well as empirical studies
show. Keynes (1936) stated that households’ saving linearly depends on households’
absolute (current) income. That is: S = α + βYt. According to Keynes the value of β
(MPS) lies between zero and one and the value of autonomous saving (α) would have
positive as well as negative. Sar midir is one of the town in the Amhara region facing
the problem lowest saving rate proportion with the people’s income and varies saving
rate between residents. all studies earlier identified few variables as a determinants of

household saving, but this study use other variables like, income, family-size,age,
gender, dependency ratio, education, house ownership, income, additional earner,
credit access, saving experience, and distance from financial institution/s),Marital
Status, Form of Institutions Used for Saving, expenditure, occupation, Frequency of
Getting Money, sex and sociocultural factor that determine household saving. All
studies earlier identified used by descriptive few variables as determinants of
household saving, but this study used other many variables like, income, family-size,
education, age, expenditure, occupation, dependency ratio, sex and sociocultural

3
factor that determine household saving. The study will addressed the problem by
using the appropriate econometric tool and descriptive analysis.

1.3 Research Objectives

1.3.1 General objective of the study

The main objective of this study is to analyse the determinants of urban household on
the habit of saving in sar midir( mertolemariam) town.

1.3.2 Specific Objectives

 To determine the response of household saving to absolute income in sar

midir( mertolemariam) town. town.

 To identify the main sociodemographic and socioeconomic factors that affect

household saving behavior.

 To examine whether any significance difference exists between saver and non

saver groups with regard to sociodemographic and socioeconomic factors.

 To assess the main purposes/motives of saving by households.

 To identify the factors that hinder households to save

1.4 Research Questions

The study will be address the following research questions

• How and to what extent does the household saving respond to the change in
absolute (current) income?

• What is the impact of socioeconomic and demographic variables on household

saving

1.5 Significance of the research

The main importance of this study includes the following:Since national
saving was aggregate of household saving. To understanding of household
saving was help toexplain micro economic [Link] large was study
serve as a reference to other researchers. For college and university students
use as a reference. For the NGOs to help in designing polices and strategies
for futures development of the study area.

4
1.6 Scope and limitation of the Study

Saving is an aggregate macro variable and difficult to handle on the analysis this variable. In
order to get a general or comprehensive picture out of the study and to make the study
manageable the study will be limited to specific geographical [Link], the study
concentrate on sar midir [Link] to this, reasons a resource the scope of the study
is limit on 4 kebeles.

1.7 limitation of the study

The researcher fear to he face a problem due to different factors expected and
unexpected problems such as respondents happy to answer or not and there is war
around the research area, but the researcher ready to handle the problem and he will
try to collect the data at the right time

1.8. Organizations of the Research

The study has organized in to three chapters; Chapter one deal with introduction parts
that includes background of the study, statement of the problem, objective of the
study, significance of the study, scope, limitation and organizing of the study. The
second chapter deals with both theoretical and empirical review literature. The third
chapter deals with the methodology of the study which includes description of the
study area, types of data, method of data collection, sampling techniques, sample size
and method of data analysis.

5
CHAPTER TWO

LITERATURE REVIEW

2.1 THEORETICAL LITERATURE REVIEW

Theories of Economic Growth and Savings In this part provides the important
relationship between saving and growth based on the well-known Classical economic
growth models of Solow-swan. Household savings literature is based on two major
hypotheses. The pioneering work of Keynes (1936) defined savings as a linear
function of income, though the first major advance in savings literature is the
permanent income hypothesis (PIH) of Friedman (1957), as cited Family size in a
developed country such as The Netherlands positively impacts on household saving
behavior. However, family sizes in developing countries such as some Latin
American countries negatively correlate with household saving behavior. However,
dependency ratio negatively correlates for both developing and developed countries .
Education has a positive impact on household saving behavior for developing
countries, specifically countries such as India, Indonesia, and the Philippines,
Household income positively correlates with household saving for both developing
and developed countries

2.1.1. Types of savings

The different types of savings are mostly determined by the revenue that a
home, business, or corporate body has available. Based on the sectors that
account for the distribution of savings, the saving type can be categorized.
Three categories, namely (a) household sector saving, (b) private sector saving,
and (c) public sector saving, can be used to classify it generically.

Household Sector saving; are those made or accumulated by the various

household members. Household saving makes up a greater portion of the
Indian economy, which is made up of people’s saving habits on a wider scale,
including their financial and financial asset holdings. Individuals at the
household level contribute to the calculation of a nation’s national income.

Private Corporate Sector saving; Savings made by privately held businesses

are referred to as savings made by private sector businesses. The non-
governmental and non-financial corporations, private commercial banks,
insurance firms, co-operative banks, credit societies, and non-credit societies,

6
as well as non-banking financial firms operating in the private sector, make up
the private corporate sector.

Public Sector saving; The savings made by the public sector are divided into
two categories: government savings and (ii) savings produced by the public
sector enterprise in the form of internal resources. Examining the correlation
between public savings and the consolidated returns insufficiency of
government, a different way to calculate government savings is one method of
evaluating the public sector’s savings.

2.1.2. Forms of savings

Individuals and families need to decide where to save to identify their greatest
fulfilment as well as to ensure the security of their money. people start saving
money when their incomes exceed their current consumption needs, and an
abundance of investment funds should be feasible in a variety of [Link] reality
families can choose to store money under their beds or on the terrace until a
future time when expenses outweigh their current income there is no saving.

Formal Savings; Savings that are kept in official financial institutions, such as
commercial banks or other non-bank financial organizations like insurance
companies, credit unions, or savings and loans firms, are known as formal
savings The pro-poor are greatly assisted in managing their financial resources
and escaping extreme poverty by having access to formal saving services. If
deposit services are properly considered and adapted to the low’s saving habits,
they are just as significant for the poor as loan services.

Informal Savings Institutions; any savings that take place in the economy’s
non-formal sector are referred to as informal savings. The informal financial
sector engages in every commercial savings and loan transaction that occurs in
the developing economy outside of the formal sector. Various forms of
informal saving exist in Ethiopia. These include privately run rotating saving
and credit clubs like iddir and iqub, which were created and organized by the
participants themselves based on reciprocal financial relationships. The most
significant informal organizations are iddir and iqub, which are founded on pre-
existing social ties. The informal saving institutions help in consumption
smoothing during economic shocks and provide an opportunity to accumulate
large sums of money for future investment and household outlays.

2.1.3. Benefits of saving

Saving has numerous advantages for both the saver and the country as a whole.
Savings are advantageous for people since they can utilize them for education,
retirement benefits, house payments, new automobile purchases, and
emergency needs. Savings not only enable income growth and rising
consumption but also level out spending in the face of a variety of uncertainty.

7
Only when the causes of uncertainty decision makers face and their options for
dealing with them are identified can saving behaviour be fully understood.

2.1.4. Purpose of saving

the main reasons people save money are for their health, retirement, sudden
loss of income, and to protect against seasonal fluctuations in income. They
also save money for long-term household goals like consumer durables, social
obligations, and future investments. Saving is one method that households and
individuals in poor nations have used to manage risk.

2.1.5 Conceptual Framework

There are several hypotheses of saving that are implied by consumption
theories (hypothesis) as the amount of income not consumed is saved. These
include the Keynesian Absolute Income Hypothesis, Duesenberry's Relative
Income Hypothesis, Friedman’s Permanent Income Hypothesis, and
Modigliani Life Cycle Hypothesis. These hypotheses are discussed very briefly
as part of theoretical literature. The Keynesian absolute income hypothesis
asserts that individuals save out of their current income to smooth the expected
consumption over time. The effect of the precautionary savings is realized
through its impact on current consumption, as individuals postpone their
current consumption to maintain the utility level of consumption in the future if
income drops. Thus saving is only possible if someone has more than enough
to meet the basic needs and can only save what is left after paying for such
basic needs. According to the relative income hypothesis of Duesenberry.

8
2.1.6 Solow-swan growth model

According to (Solow, 1956) model saving rate influence the steady state level of
economy and have an impact on growth rate of output temporarily. This model
express the increases in the rate of saving affects the level of capital stock and the
level of per capital income however it doesn’t affect the rate of economic growth.
This model is constructed by the two equations which are the production and capital
accumulation equation. The production equation expresses how imputes (capital and
labor) are combined and provides an output. This production function specified in the
form of Cobb-Douglas production function. Matimatically

Y= f(K,L)=Kα Lα-1

Where Y is output, K is capital and L is labor, the value of the parameter is between 0
and, small k is the capital labor ratio (k=K/L), small y is capital per worker ratio
(y=Y/L). The marginal product of capital is positive but decreasing. Labor force
grows at constant rate (gL).

Y= Kα

The production function graphed in a convex form which characterizes the more
capital per worker produces the more output per worker and the diminishing return to
capital will takes place when for the farther increase in capital accumulation.

While Y specifies actual output per capita produced for any capital- output ratio, k,
(gL/s) k specifies the output needed to maintain the corresponding capital labor ratio.
An increase in saving will increase the steady state level of capital per capital and
output per capital.

2.1.8 H-D model

The HarrodDomar model depends on two important variables of saving and capital
output ratio for an economy, and starts with an assumptions of Full employment of
capital and labor besides saving is equal to investment moreover this model assumes
that no government intervention, closed economy and no depreciation. as stated by
(Richard R, 1966) The model focused on the limited role of government in the
economy and the role of savings as the main determinant of investment. Therefore,

9
the rate of growth in GDP will be sustainable if the growth rate of both capital stock
and labor are grows as the rate of growth in income. However, this condition may not
be true in the real world because the condition of equilibrium growth in both full
employments of labour and capital is impossible, which is the basic defect of this
model. [Link] (2000)

Y = GDP, Y be GDP and S = sY, (S) is saving,

(s) Average propensity to consume

K = vY, v = K/Y, (v) is the capital-output ratio

Investment is defined as the change in capital stock, thus

I = ΔK → K = vY → K/Y = v

→ΔK/ΔY = v → ΔK = v ΔY

Saving is equal to Investment, (S = I)

sY = v ΔY Therefore, g= = ΔY/Y

g = the equilibrium growth rate of the economy

From the above model the percentage change in GDP or the growth rate of GDP
(ΔY/Y) can be determined by the ratio of average propensity to save (s) and capital-
output ratio (v).

Therefore, according to Harrod-Domar (1959) growth model saving has a positive

relationship with GDP growth rate and a negative relation with the capital-output ratio
since it is the denominator, thus the country with more saving or more investment
(S=I) will have higher growth rate than those countries with less saving rate.

2.1.10 John Maynard Keynes

Keynes said that decision as to consume or save are more complicated than this an
individual wishing to save money may be motivated by such feelings as pried and
avarice(agreed) by desire to bequeath a fortune to his heirs or by the need to prove for
certain contingencies( eg. Illness or unemployment). These are motives which reduce

10
consumption; on the other hand which increases consumption (e.g. Ostentation,
extravagancy and generosity).Robert. MC. Kennedy, (1968)

With regard to their decisions to save, individuals were not, according to Keynes, as
sensitivity as the classical school had imagined to interest rate changes. Individuals
first sought an acceptable level of consumption and undertook to save only when their
income was more than sufficient to cover consumption requirements. In this sense
saving was a residual, varying in amounts with change in the level of income. With
regard to the propensity to consume the conclusion which Keynes arrived at was that
with the exception of money income, no change in objective conditions would
significant affect propensity to save. Keynes develops aa further concept the marginal
propensity to consume. This is the proportion of any additional income which spent
on consumption. It is reasonable to assume that the rich people save a large proportion
of their income than the poor people.(or put another way, their average propensity to
save is higher).Gujarati. d (2004)

When the general theory first appeared there was some confusion among readers as to
what Keynes meant by the equality of saving and investment. It is the obvious that on
Keynesians assumptions, what entrepreneurs actually invest will be equal to what
families actually save.

Keynesian analysis reveals, however that what entrepreneurs wants to invest more
than families wants to save through the multiplier, they will increase in national
income and there by increase the total saving of families; if ,on the other hand they
attempt to less than families wants to save, through the multiplier they reduce national
income and thereby reduce total saving. This are two categories’ of people taking
decision for different reasons. There is no reason why the investment decision of
some tens of thousands of entrepreneurs should match exactly the saving decision of
millions of [Link]. Bush (2012)

Investors are interested in acquiring wealth creating assets. They choose among those
that are available on the basis of the prospective yield to them from selling the out put
that the assets can produce. In this exercise they have to make judgments.

11
2.2 EMPIRICAL LITERATURE REVIEW
The role of saving for economic growth has been widely discussed in various
literatures. I begin by observing the empirical relationship between growth rates and
saving rates in countries with different income group data.

in Muradoglu and Taskin (1996). The other major contribution to savings literature
comes from the lifecycle hypothesis (LCH) by Ando and Modigliani (1963), whose
basic assumption is that individuals spread their lifetime consumption evenly over
their lives by accumulating savings during earning or working years and maintaining
consumption levels during retirement. According to Beverly and Sherraden (1999),
the existing saving theories do not focus on low income households who are a
majority in the Least Developed Countries (LDCs), relatively, little is known about
the true determinants of saving in such households groups. The prior study’s findings
are summarized as follows: When age increases, saving also increases at a decreasing
rate, both in developed and in developing countries and have a positive impact on
household saving behavior (Attanasio, 1997; Burney & Khan, 1992; Faridi, Hafeez,
Chaudhry, & Bashir, 2011; Foley & Pyle, 2005 as cited in Pailwar, 2010; Unny,
2002). Women were found to have more probability of saving than male counterparts
in developing countries. Thus, being a female household head positively impacts on
household saving behavior in developing countries (Chowa, 2006; Faridi et al., 2011,
as cited in Bizuneh, 2011)

Based on neoclassical growth model (R. Solow, 1956) suggested that savings affected
the economic growth since higher savings led to capital accumulation, which in turn
led to economic growth. saving has no influence on the long run growth of total and
per capital output since capital deepening increase capital labor ratio and also increase
the share of output to replace and keep the existing capital but it still positively affects
the living standards permanently by increasing the steady state amount of stock of
capital per worker which, in turn, allows an increase in output per worker in the long
run. Thus, depreciation of capital may exceed net investments. A growing labor force
may accelerate this condition because more workers need to be equipped with capital.

In recent times, many empirical studies highlighted in varied role of private and
public investments in growth process. As sighted in (Dritsakis, 2018), (Κhan and
Kumar, 1997) argued that the effects of private and public investments on economic

12
growth differ significantly, through private investment to be more productive than
public one. (Nelson and Singh, 1994) confirmed that public investments on
infrastructure have an important positive effect on economic growth over the period
1980-1990. Easterly and (Rebelo, 1993) assessed that public investments on
transportation and communications are positively correlated to economic growth,
while there were negative effects of public investments of state-owned businesses on
economic growth. Gujarati.D.N (1995)

Family size in a developed country such as The Netherlands positively impacts on

household saving behavior (Eizenga, 1961). However, family sizes in developing

countries such as some Latin American countries negatively correlate with household
saving behavior (Edwards, 1996). However, dependency ratio negatively correlates
for both developing and developed countries (Leff, 1969).

Education has a positive impact on household saving behavior for developing

countries, specifically countries such as India, Indonesia, and the Philippines
(Bernheim & Garrett, 1996; Kelly & Williamson, 1968; NCAER, 1964; Rodriguez &
Meyer, 1988; Sharma, 1986); however, it negatively correlates with household saving
behavior in Estonia (Kulikov, Paabut,

& Staehr, 2007). Household income positively correlates with household saving for
both developing and developed countries (Faridi et al., 2010; Kraay, 2000; Kulikov et
al., 2007; Loayza, SchmidtHebbel, & Serven, 2000; Nasir & Khalid, 2004).

Credit access positively impacts on household saving in developing countries such as

in Ecuador, El Salvador, Paraguay, and in Mexico (Aportela, 1999; Rogg, 2000).
Credit constraints negatively impact on household saving in developed country such
as the United Kingdom (Berry & Williams, 2009). Home ownership has varied effects
on household saving behavior in developed and developing countries. In Japan,
saving varies across homeowners

and renters (Suruga & Tachibanaki, 1991). However, real estate ownership does not
have a significant effect on household saving in some developing countries such as
Morocco (Abdelkhalek et al., 2009). Most of the prior studies adopted a
macroeconomic approach to saving behavior, yet the behavior of economic units on
the aggregate level may not necessarily be the same as on an individual level. The

13
impact of demographic variables have been extensively studied in the literature, but
the results are inconclusive about the impact

of these variables on household saving

The causal relationship between savings and investment has been widely discussed in
the empirical literature according to (Mason, 1988), based on a cross country
comparison the study found that the positive (0.7) relation between domestic saving
and gross domestic investment means that on average a one percent increase in
domestic saving cause a 0.7 percent increase in investment. Recently (Jagadeesh,
2015) explored the relationship between savings and economic growth in his
empirical study the data were stationary and co- integrated and showed that there is a
significant relationship between savings and economic growth in Botswana. The
results supported that saving rate positively or directly related to the GDP in this
country. [Link] (2001)

(Ciftcioglu and Begovic, 2010) used Housman and LM tests to study the relationship
between savings and investment in the sample of advanced economies of the Europe
and found statistically significant evidence of saving and GDP growth. Which, reveals
that the optimal econometric model, the panel estimation of the relationship between
domestic saving rate and the growth rate of GDP for their sample of Central and East
European countries .The study recommended that the economic growth and domestic
saving rate are positively correlated for the sample of Central and East European
countries over the sample period. Based on their study domestic savings have
continued to be an important source of domestic investment which is ultimately the
parameter that links savings to output growth. Domestic saving rate is positive and
statistically significant at 5% level. Koutsoyiannis (1997) and Lewis W.A (1954)

(Sajid and Sarfaraz, 2010) analyzed the effect of savings on economic growth by
using seasonal data for 1973 to 2003 in Pakistan. The authors assessed the causality
relation between savings and economic growth by using co-integration techniques and
a Vector Error Correction Model (VECM). Their results show that there is a one-way
causal relationship from savings to

economic growth. The long run results of this study show the importance of savings
in investment creation for Pakistan. The short run results also indicate that there is a

14
relation between domestic savings and GDP. The causality relation only runs from
national savings to GDP in the short run. The short and long run results of this study
confirmed the Keynesian view that saving is a function of income levels.

(Aghion and Comin, 2019) used a cross-country panel regression, and estimates
lagged saving on growth are significantly larger for poor than for rich countries. The
average estimate of the effect of saving on growth for the sample of rich countries is
zero. (Verma and Wilson, 2007) there is a unique equilibrium relationship between
the level of saving and output. Indicates a one percent increase in saving is consistent
with a 0.55 percent increase in output in long run equilibrium. This estimate is
significant at the one percent level. This shows the close relationship between output
and saving.

(Sajid and Sarfraz, 2017) used vector error correlation model and showed that in the
long run savings causes Economic growth in the same study there is mutual short run
causality between domestic Savings and GDP. (Caceres, 1995) was found that in
sample of four countries domestic savings apply a much larger impact on economic
growth than external savings. These results indicate that mobilization of domestic
Resources of financial, real, and human where lies the key for countries development.

(Mohan, 2006) investigated the causality relationship between savings and economic
growth in 13 countries with different income levels during 1960- 2001. The countries
were divided into

four different income levels: low income, less than the average, more than the average
and high income. He used a Granger Causality Test and showed that the causality
relation and direction differs among countries depending on income levels. In general,
the Keynesian theory of savings as a function of growth was confirmed in countries
with low and less than average incomes while the Solow hypothesis that savings is a
determinant of economic growth was confirmed in countries with high and more than
average incomes.

(Anoruo and Ahmad, 2001) analyzed the relationship between saving rate and
economic growth for Congo, Cote d‟Ivoire, Ghana, Kenya, South Africa, and Zambia
by using VECM model and co integration test. In their study, except for Nigeria, in all
counties, it was recognized that there was a positive relation between saving rate and

15
economic growth. The results of causality test showed that economic growth was
Granger cause of saving rates for Ghana, Kenya, Nigeria, and Zambia, in return to
this, for Congo, that saving rate was Granger cause of economic growth. Finally, in
Cote d‟Ivoire and South Africa, there is a two directional causality between two
variables.

(Ekinci and Gül, 2007) analyzed the relationship between domestic savings and
economic growth for Turkey by means of VECM model and co-integration test, using
the data belonging to the period of 1960 -2004. According to the result of the analysis,
there is a long term relationship between saving rate and economic growth. But, the
results of Granger causality analysis, in contrast to the traditional view, it shows that
there is one-directional causality in Turkey from economic growth to the domestic
saving rates.

(Thornton, 2009) conducted a study on Consumer expenditure and the study

confirmed that Consumer expenditure is a large component of aggregate demand that
even a small decline in consumption could have a noticeable effect, and the more
saving means less consumption. They look data on the U.S. personal saving rate and
GDP growth since 1948 for some insight into how likely it is that increased personal
saving will slow economic growth.

(Bruckner, et al. 2014) the study confirmed that changes in national income may
increase or decrease the aggregate savings rate depending on the level of national
income and the increases in borrowing constraints have a positive effect on the
aggregate savings rate. The study suggests that in poor countries growth in incomes
per capita will lead to increases in aggregate savings rates while, the opposite
situation takes place after certain limit in the level of economic development.

The acceleration of saving becomes particularly essential, as a main proportion of

investment is financed by domestic saving. The heavy dependence of investment on
domestic saving strengthens the Lucas Puzzle „why doesn’t capital flow from rich to
poor countries‟ (Lucas, 1990) on the lack of capital flows from the developed
countries to the developing countries. Saving is a provision for future consumption for
the individual households and a source of capital accumulation for the economy at
large.

16
(Singh, 2009) conducted a study in India based on time serious data and found the
significant impact of saving on income, these saving contributed for domestic
investment to grow and accelerates capital accumulation which leads to the economy
to grow .based on this study most

of these saving comes from the surplus domestic household saving sector which
finance the deficit private and public sector and fills the resource gap.

(Abu, 2010) studied the relationship between savings and economic growth in Nigeria
using Granger Causality techniques and Co-Integration for the period 1970 to 2007.
His results indicate that the variables are co-integrated in such a manner that one can
conclude there is a long-run equilibrium relationship between them and that causality
is from economic growth to savings.

(Narayan, 2006) conducted a study based on autoregressive distributed lag modeling

approach for Japan over the period 1960–1999. Finally, the study confirmed that there
is a co integrated result between investment and saving they used bootstrap approach
to find out the direction causation that shows investment causes saving for the Japan.

An economies faced the crowding out effect of the private sector investment through
decline in savings rate as a result of government’s indebtedness, the evidence suggests
by (Esmail, 2014) reveals that national savings rate is negatively related with federal
debt growth and inflation. The study conducted by using Ordinary multiple
regressions in Egypt.

(Amusa and Busani, 1998) analyze the relationship between domestic saving in case
of Botswana. Based on this study the country has relatively high saving to GDP ratio
and they used Bound testing approach for co integration analysis and establish the
relationship between domestic savings and economic growth in Botswana. Their
result indicate that domestic savings is significantly positively related to growth in
Botswana.

(Tinaromm, 2005) studied the relationship between savings and economic growth in
North Africa using a Vector Error Correction Model for 1946-1992. He concluded
that private saving

17
has both direct and indirect effects on economic growth. In his view, the direct effect
of savings is through private investment. He also showed that economic growth has a
positive effect on the private savings rate.

(Singh, 2010) studied the causal relationship between domestic savings and economic
growth in India. He analyzed the short and long run relation between these variables
using an Autoregressive Distributed Lag model for the period 1950 to 2002. The
results indicate that there is a two-way relationship between savings and economic
growth. His results also showed that an increase in savings and capital accumulation
will lead to higher income and economic growth.

(Jilani, 2013) examine the determinant of national saving in Pakistan and their
findings show that GDP, inflation, and fiscal deficit play significant role in
determining the national savings of the studied country also coefficient analysis
showed that growth rate and increased Government consumption give positive impact
in increasing national savings while inflation possessing negative relation with
national savings of the country.

As from consumers‟ perception when prices of commodities increase people have to

spend more on buying which decreases the rate of domestic savings. So it can be
argued that there exists a negative and significant relation between inflation and
domestic savings which, in turn, directly influences the national savings (Kazmi,
1993).

Econometric research on the determinants of household saving based on micro data

drawn from the less developed countries has lagged far behind the peace set in
advanced nations. It would appear that there has been limited hypothesis testing in the
LDC, beyond macro formulations the consumptions function. Furthermore, very little
of the development literature attempting to isolate the impact of structural change on
aggregate personal saving since few study provide meaning full disaggregation
(Kelley and Willianso,2009). This state of affairs seems paradoxical given the
currency of W.A Lewis Remark theory that the central problem in development
theory is to explain are increase in domestic saving from 4% to 5% of national income
to 12% or 15% (Lewis, 1954). Beside, few study assess the determinants of saving at
the individual level generally due to the lack of data using recent econometric
techniques, carpenter and Johnson (2002) and Kalikow et al, (2007). Saving

18
behavior in Pakistan and in Estonia respectively Carpenter and Jenson (2002) Focus
on the role of institution which collect saving stress on the role of formal (Banks) and
informal institution (Saving committee). They found that “Increased income leads to a
great desire to participate in some form of saving institution but as income increase
more individual shifts to the formal sector” they also found evidences that the urban
rural differences in bank use is negligible which suggest that formal finances is not
primarily restricted to urban households in Pakistan. As on the saving supply side,
whereas (2002) analyze the saving determinant on the demand side. Making a
distinction between regular and temporary household income allows the author to put
forward the role of income variability and the different forms of household assets
(financial and non-financial) in a transition economy (Estonid). Their analysis is
based on data from household budget survey. As in many empirical study they found
that the saving rate depending more on the transitory income than regular income.
Among the other variables, the level market status or the non-financial assets
ownership (Real state for instance) and credit access have not significant on the
household saving behavior. Among the few researches done in developing countries;
Klause et al (1992) and household saving in developing countries and found that
income and wells variables affects saving strongly. Touhami et al (2009). Also
investigate the micro economic determinants of household saving in macro. They
concluded explain cross sectional variation of the saving behavior of households in
macro. Similarly, Girma et al. (2013) identify rural household saving in east Harerge
Zone Oromia Region state of Ethiopia

2.3 Research gap

Too many study conduct on determinant of household saving on macro level ,but this study
will be undertaken in specific area and uses different methodological analysis beyond the the
earlier researchers done.

The empirical literature review revealed that there are different factors that affect
household saving. Besides, there is no conduct on micro economic level on
determinants on in enebisie sar midir woreda in Amhara region and limited studies are
found on the country. Therefor the paper attempted objectively to identify major
micro level characteristics of the household on saving behaviours.

The other researchers have used to control mostly quantitatively he specific variables
but under this study the researcher will try to analysis the qualitative variables and

19
uses the econometric analysing methods most of the earlier researcher have been used
descriptive analysis.

CHAPTER THREE

RESEARCH METHODOLOGY

3.1. Description of the study area

The study would be conducted in Enebisie Sar Midir woreda which is located in
Amhara region east gojjam zone , approximately 365 km norhwest of Addis Abeba
and 144 km from bahir dar, the regional capital of Amhara.
Enebise Sar Midir is one of the woredas in the Amhara Region of Ethiopia. This woreda is named
in part after the historic district of Enebise, which was first mentioned in the 16th century. [2] Part
of the Misraq Gojjam Zone, Enbise Sar Midir is bordered on the south by Enarj Enawga, on the
west by Goncha Siso Enese, and on the north and east by Abay River which separates it from
the Debub Gondar Zone and Debub Wollo Zone. The administrative center of this woreda
is Mertule Mariam; other towns in Enbise Sar Midir include Dibo (Amharic ፡ድቦ)and Segno
Gebeya(amharic፡ ሰኞ ገበያ).
Based on the 2007 national census conducted by the Central Statistical Agency of Ethiopia (CSA),
this woreda has a total population of 133,855, an increase of 23.20% over the 1994 census, of
whom 66,139 are men and 67,716 women; 12,259 or 9.16% are urban inhabitants. With an area of
1,075.05 square kilometers, Enbise Sar Midir has a population density of
124.51wasthe Amhara (99.94%). The majority of the inhabitants practiced Ethiopian Orthodox
Christianity, with 98.1% reporting that as their religion, while 1.8% were Muslim.[6]

Geographical Sar Midir, Amhara Region, 39°39'13"E · 10.35139,39.65371 ·

Cwb : Subtropical highland climate or temperate oceanic climate with dry winters ·
329279.

20
3.2. Sources and types of data

This study would be used primary data which collected from primary sources through
dispersing of structured questionnaires to respondents found within the target area. In
such way it provides statically information on household demographic composition,
income, age, family size, explanation variables and other important socioeconomic
variables. So that, the study will be contact to gather primary information from house
holding of sar midir [Link] sample be selected by using simple random sampling
technique. Secondary data will be collected from enibise sar midir(meritolemariam)
town administration finance and economic development office, central statistical
authority and municipality source (Google, Chrome etc.

Both quantitative and qualitative data would be used. The data will be collected by
self administered questionnaires that will convert to quantitative terms. Therefore, the
study will be utilized both qualitative and quantitative data.

The data source for the study was primary, or firsthand, data that will be collected
from household respondents through self-administered questionnaires.

3.3 Method of data Collection

The data will be collected from both primary and secondary data sources. To gather
primary data, interview and questionnaire Will be used. The secondary data will
betaken from town office and development agencies. A questionnaire will be
developed to collect data on the determinants of urban households saving.

3.4. Sampling techniques and sample size determination

For the selection of the sample, a stratified sampling design will be adopted. We
divided the population into three stratum based on age and there is heterogeneity
within the households in each stratum, like differences in distribution of wealth (asset

21
ownership), level of education, proportion of different ethnic groups, etc. Thus, a two-
stage stratified sampling technique will be applied .Accordingly, the sample
households will select via simple random sampling techniques from each of the
stratum based on their weights.

This sample is more comprehensive and representative of the population. In this types
of sampling primary sample units are inclusive groups and secondary units are sub
groups within this ultimate unit will be selected which belongs to one and only one
group. Stages of population are usually available within a group or population, where
ever strategic is done by the researcher.

In enebisie sar midir woreda there are total household of 10000 in the city not
including the child that of age under 10. To determine the sample size first we must
identify categories

Age categories Populations of area

10-30 3000

31-50 5000

51+++ 2000

22
 Total 10,000

Yemane Taro formula determined the following sample size for this study.

N
n= 2
1+ N (e )

Where N, n and e are total households in the city, sample size and level of
significance respectively.

10000
n= =99.9=100
1+ 10000¿ ¿

Proportional stratified formula is appropriate

¿
ni= n ∗∋ N ¿

100∗ 3000
n1= =30
10000

100∗ 5000
n2= =50
10000

100∗ 2000
n3= =20
10000

ni is no of sample from each stratum

Ni is no of population from each stratum

n is sample size result of Yemane Taro formula

ni=n1+n2+n3=30+50+20=100 total sample size

After this technical analysis of sample size the researcher will be uses systematic
random sampling from each stratum until the individual undertaken

3.5 Methods of data analysis

The data will be analyzed by using descriptive statistics and logistic regression.

Descriptive analysis will employee in order to explain the relationship between

independent variables and saving behavior of households, and to identify major saver

23
and non-saver household characteristics. Besides, logistic regression analysis will be
used to identify the major determinants of household saving behavior.

To answer the questions stated above, both econometric and descriptive methods of
data analysis will be employed. Thus in order to estimate the effects of main
determinants of urban households savin3.6 Econometric model specification

3.6 Econometric model specification

For the proper investigation of the research objectives for analysis purpose, the study
will be employed both descriptive and econometric method of data analysis. In order
to analysis the raw data and to plainly see the relationship between dependent and
independent variable the study will be used the so called STATA software.

Generally the researcher would be uses descriptive and econometric method of data
analysis.

Logit model is a model for binary response where the response probability is the logit
function or standard normal cumulative function evaluated at a linear function of the
explanatory variables (Wooldridge, 2009). In the logit model the probability of being
a saver or not can be defined

The rationality for uses Logit model is Household Savings (Dichotomous Variable
household is saver or not ),due to this reason I will use this model.

3.7. Description of the variables

3.7.1 Dependent variable

Saving(s): the amount of money saved in one year from the disposable income of
household.
3.7.2 Independent Variables

Table 3.2 description of variables

Variable Abbreviation Description Measurement Expected
sign
Current Y Yearly income of continuous Positive

24
 income household
Sex Sex Sex household Dummy:’’0’’for Positive
head female,’’1’’for male
Age Age Age of continuous Negative
household head
Family size F- size The amount of continuous Negative
family member
Dependenc D-ratio the ratio of non continuous Positive
e ratio income earner to
income earners
education Edu Educational level continuous Positive
of the household
head
Expenditure Exp spend of the continuous Negative
household head

CHAPTER FOUR

DISCUSSIN AND DATA ANALYSIS

4.1. Descriptive Analysis

4.1.1. Demographic profile of respondents

Most of the time, market price of a commodity and income (budget) of a household
considered as a major determinants of household saving. But broadly thinking, there
are many other important determinants of saving on that we have seen in day today
activity. These are family size, income of household, education level, sex, age of
household head, dependence ratio, expenditure of household and other different
demographic factors, among these and other factors of saving the following are
considered as major determinants urban household in this study.

Family Size

25
It is the total numbers of household members and the major determinants of saving
next to disposable income. This is because; It is mostly related with human needs and
wants. Household saving in relation with needs can be differing according to age and
sex. It can be effective household size or absolute household size. Due to the absence
of findings a satisfactory and country specific weight, we lead to use absolute
household size than effective household size.

Table 4.1: Family size of the household

family number of household percentage

<5 27 27.55%
6-10 50 51.02%
>10 21 21.42%
Total 98 100
source; Author computation from 2020 survey
The above table shows that, 27(27.56%) of respondents answered that family size
ranges between >5 person per households, 50(49%) family size ranges between 6-10
person per households, and 21(23.44%) family size have >10 and above person per
household. so depend on this table most of household’s between 6-10.

Table 4.2: Sex of the household head

Sex of household head Number of households percentage

Male 63 64.28%
Female 35 35.72%
Total 98 100%
Source: Author computation from 2020 survey

As the above table shows that, 63(64.28%) households are male, and 35(35.72%) are
female. From this table we can conclude that, most of the households head are male.
According to, Taddessekuma (2010), male household head is a primary decision
maker and they have more access and control over vital saving than female
household head because of many socio-cultural values and norms.

Age of Household Head (Age)

26
It is one part of determinants of household saving behavior in the world. Obliviously,
age of population can be classified into three major groups, that is, children, adult and
old age. Even if, the study considers age of household, this age group has their own
contribution on household saving level.

Table 4.3: Composition of HH Head’s Age

Age No of hh percentage
19-65(adult) 80 81.63%
>65 18 18.37%
Total 98 100%
Source: Author computation from 2020 survey

As a result, most household grouped under adult age groups. According to the above
table 80(80.63) of respondents are adult age and 18(18.37%) are old age. This
indicated that adults are more engage in production system with higher saving.
Therefore, these age groups have either negative or positive effect on household
saving level.

Table 4.4: Educational Level of Household Head

Education Level of Household Number of HH percentage

Head
Cannot read and write 7 7.14%
Religious education 9 9.18%
primary(1-8) 10 10.20%
9-12 secondary and prepratory 22 22.44%
above 12 50 50.20%
Total 98 100
source; Author computation from 2020 survey

The Education level determinant of household level of saving. Because when each
household start education, they need different things or materials to achieve their
objectives. According to (Yin and et al), when they already educated, they know
different items or commodities that are available for saving.

27
From the above table, any household under this study are both educated and
uneducated that is, they cannot read and write 7(7.14%). From respondents 9(9.18%)
are take at least religious education,10(10.20) are educated primary education (1-8
grade), 22(22.44%) are educated secondary& preparatory (9-12grade) and the
remaining 50(50.02%) are educated higher education. Most household heads are
grouped under higher education level. As a result, we can conclude that household
education (weather they are already educated or learning now) has great participate on
their saving

4.1.2 The income of the respondents

Household Disposal Income (Yd)

It is the income after tax net income of household from different source of income. It
is the most important determinants of saving compared to others. Most household’s
income especially those households, live in developing countries are shared
consumption purpose. Any change in disposable income may have direct effects on
total expenditure. The direction of the effect of this change depends on the income
elasticity i.e. the ratio of proportionate change in demand to proportionate change in
income, explain that what will be the effect of demand when income of consumer
changes provided other things remains constant. It explain responsiveness in demand
in relation to change in the income of consumer, of the given commodity that is the
consumption pattern of welfare of the household. There various measurements for
welfare of the society. Among this measurement according to the permanent income
hypothesis consumption expenditure is a better measurement of human living
standard
Household income is one of the main determinants of household saving. According to
Mankiew, income and saving have positive relation, means when income increases at
same time saving.

Table 4.5: The Distribution of Respondents by monthly Income in the study area

Household income per Frequency of Percentage of household

month household income income

28
 <1000 8 8.16
1001-2000 36 36.74%
2001-3000 24 24.48%
3001-4000 19 19.38%
>4000 11 11.27
Total 98 100%
Source: Own survey, 2020.

The data indicates from the above table the vast majority of the respondent of the
household income were found between the grouped data 1001-2000 birr interval that
is 36(36.74%) respondent and less than or equal to 1000 birr income per month 8
(8.16%) respondent were found. on the other hand between 2001-3000 and 3001-
4000 interval 24(24.48%) respondent and 19(19.38%) respondents are incorporate
respectively as well as the remaining 11 (11.27%) respondents are found above 4000
birr per month.

4.1.3. Consumption expenditures

In this section of the study, more attention is given to show the share of household’s

Consumption expenditure on different commodities or items from the expenditure.

expenditure for school; Sales; other expenditure; Sales; 0.025; 2%

0.0982000000000001; 10%
miscellaneous expenditure;
Sales; 0.0662; 7%

total food
expendituer on social , cultural consumption ;
life ; Sales; 0.1224; 12% Sales; 0.5264;
53%

expenditure on medical
service; Sales;
0.0574000000000001; 6%
expendituer on housing ; Sales;
total food consumption
0.1044; 10% expendituer on housing
expendituer on social , cultural life miscellaneous expenditure
expenditure for school

Source: Author computation from 2020 survey

29
 Fig 4.1 Household consumption expenditure

Table 4.6: Percentage share of expenditure with sample size of 98.

Expenditure item Percentage

Expenditure on food 52.64%
Expenditure on housing 10.44%
Expenditure on social and cultural 12%
life
Miscellaneous Expenditure 6.62%
Expenditure on school 9.82%
Expenditure on medical services 5.74%
Other expenditure 2.74%
Source: Author computation from 2020 survey

Food expenditure

It is one the most basic needs for everyone to survive in life on the earth. It constitutes
around 52.64% of the total consumption expenditure of the household. It does not
mean that food is the only consumption commodity it is compared to with others.
Mostly it is known that the share of consumption in poor countries are higher than
that of rich countries , but this gap declines (consumption share of poor countries
decline) as its national income increases

Expenditure on Housing
It includes house building materials, maintenance and rent expenditure, which
constitutes 10.44% of in the total household expenditure. This shows that most
households (residents) of Shashemene town spend high rent for housing.

This is due to the imbalance between the income they received and the cost of
materials for building, because of existence of price shocks (inflation) and lack
accessibility of land.

Cultural and Social Life Expenditure

Based on the result above, this expenditure item (expenditure on different ceremonies,
donation religious institution, contribution to idir) comprises 12.24% in the total
household expenditure. Culture and social heritages are one of major difficult for

30
economic development in least developing countries. Because this leads the
household to spent more of their income for such types of extravagant like (wedding,
teskbar, and mahberetc) activities.

Miscellaneous Expenditure

This category of expenditure item in the household expenditure includes water bill,
electricity bill, and telephone bill, and mobile card, which constitutes 6.62% of the
total household expenditure.

School Fee

School fee(school fee, other educational expenditure example, fees for maintenance
and for school fence). It accounts 9.82% of the total household expenditure.

Now a day people know the importance of education for sustainable economic
development of the country and improve social economic welfare of the society as
whole. They give move attention for education for children in privet school in
addition to government schooling system. This leads the household to spent more
income on school fee.

Expenditure on the medical services

It includes both modern and traditional medical system, which accounts 5.74% of the
total household consumption expenditures. This result shows that either they it is in
household a position of good health condition or the household might use cheap
medical treatment system. According to the data collected shows, households have
less spending on the medical services and they may not afford medical services at all.

Expenditure on Other Goods and Services

This categories of expenditure item includes kitchen equipment, durable goods like
(TV and radio), fuel, utility personal care etc. that constitutes 2.5% of the total
household consumption expenditure item. Durable goods are luxury, expensive and
server the household for long period of time.

4.2 ECONOMETRICS MODEL REGRESSION ANALAYSIS

Econometric diagnosis tests

31
Before running the model, efforts have been made to detect whether the data set
suffers from the problem of multicollinearity or not. The variance inflation factor
(VIF) test has been employed to check for the presence of severe multicollinearity
problem among the explanatory variables included in the model. The larger the value
of VIF is the more “troublesome” or collinear the variable Xi is. By the rule of thumb,
the VIF greater than 10 is an indicator of serious multi-collinearity problem. For this
study, the mean VIF value of all independent variables in this model 3.4 is less than
10 (see appendix table 1) and hence we concluded as there was no strong correlations
among explanatory variables in the model. Heteroskedasticity problem occurs as a
result of the presence of outliers or extreme values in the observation that is much
different (either very small or very large) in relation to the observations in the sample
(Gujarati (2009). For Heteroskedasticity problem test, as it is indicated on appendix
table 2, the Breusch-Pagan / Cook-Weisberg test shows that the data has no problem
of heteroskedasticity as the Prob - chi2= 0.067 is greater than 1% level of
significance, and hence we concluded that the model is free from any
heteroskedasticity problem.

Table 4.7: Regression of variable

Number of obs. = 98
F( 7, 90) = 603.56
Prob> F = 0.0000
R-squared = 0.9791
Adj R-squared = 0.9775
Root MSE = 5.2984
Saving Coef. Std. Err. T P>t [95% Conf. Interval]
Sex -1.000669 1.138459 -0.88 0.382 -3.262417 1.261079
Age -.241445 .2647336 -0.91 0.364 -.7673846 .2844946
Income .9296974*** .0249565 37.25 0.000 .8801169 .979278
Family size -.6398139 .5340681 -1.20 0.234 -1.700833 .4212056

32
 Dependenc -.6810367 1.163003 -0.59 0.560 -2.991546 1.629473
e ratio
expenditure -.929665*** .0253996 - 0.000 -.9801259 -.8792046
36.60
Education 1.472131** .7143709 2.06 0.042 .0529087 2.891354
_cons 14.96627 10.01772 1.49 0.139 -4.935683 34.86822
*** & **show the variable that is significant at1% and 5% level of significance.
Source: own computation from survey data, 2020

4.2.1: Discussion of significant variables

The overall significance of the variable is tested by Prob> F. If Prob> F less than0.05
(5%) then the explanatory variables included in the model are jointly statistically
significant and the explained variable. As a result show Prob> F= 0.0000 then, it is
statistically significant. The goodness of fit of the model is measured by coefficient of
determination, which show the percentage or power of explained variable to express
by the explanatory variables. This is expressed by R –Square = 0.9791, which states
that 97.91 percent of the variable of the explained (dependent) variable is due to the
variation of explanatory variables included in the model and remaining variation
(2.09%) is explained by variables which are not included in our econometrical model.

Income: Income of household affect saving positively and are statistically significant
at 1% level of significance. The marginal effect value of income is 0.9296978. This
shows that, keeping other things remains constant, when Income of households
increases by 1%, the saving of household increase by 93%.

Education: the Education has statistically significant positive effect at 5% significant

level. The marginal effect value of Education is 1.472131. This shows that; keeping
others things remains constant, when Education level of household increased by 1%,
Saving increase on average by 0.01472131%..

Expenditure: the expenditure has statistically significant and negative effect at

1%significant level. The marginal effect is 0.9296653. This shows that; keeping
others things remains constant, when expenditure of households increase by 1%,
saving decrease on average by 92.97%.

33
 CHAPTER FIVE

SUMMARY, CONCLUSSIN AND RECOMMENDATION

5.1 SUMMARY

The researcher studies the determinants of urban household saving in shashemene

town was selected 98 sample of size. The researcher analyzed data both descriptive
and econometrics. For descriptive high light. Most of The researcher studies the
determinants of urban household saving in case of shashemene town the respondents
of the town are male 64.28%. Most of the respondents of the town have a family size
of interval 6-10 (51.02%). Greater percentage (50.20%) of the respondents is diploma.
Majority of the respondents (88.73%) of the town are low monthly income. The most
of respondent age are (19-65). The greater expenditure of the respondent is on food.
In case of econometrics three variables are statistically significant those are income,
educationandexpenditure.

5.2 CONCLUSSIN

The study analyses both descriptive and econometrics method to search determinants
of household saving behavior of in the shashemane town based on primary and
secondary data collected from the household settlers of this city town . Generally,
based on the findings this study according to econometrics analysis and descriptive
analysis affects the household of shashemene town. These areas follow.

 Income of the household is the variable affecting significantly the household

of saving in shashemene town. So that, in order to encourage the saving
behavior of this town of household people, it must have their own source of
income. Due to this ,those who have unemployed household in this town
should initiate for work to improve their own saving behavior

34
  Education level in this study is one of the essential variables for the saving
character of the household. According to the collected data of this sample
most of household in this town is educated. So, in order to increase savings
rate of household education is very important and so government should have
to address school for all society

 The expenditure level in the study is one of the essential variables for the
saving character of the household. According to the data of sample most of the
households in this town spend on food.

Generally the study can concluded that the above for significance of variable is more
advantage for saving behaviour of sheshemenetown that affect significantly,
positively as well as negatively, for the determinants of household saving in
sheshemene town.

5.3 Recommendation

After taking above result in to consideration, the author recommended the following
ideas:
 Reducing family size through giving awareness to society and other methods
that reduce family size of household. If the government provides incentive for
those who use family planning household may use this policy. So in order to
control family size of household policy implementation is important one.
 Since income is the major determinant of saving then, due attention should be
given to increase income of households. Income could be increased by
implementing policies that increases the employment opportunities and reduce
underemployment and disguised unemployment.

 It is better to design policies and strategies that encourage saving and

motivation the people of the town to participate in saving. The government
shall initiate the development of saving institution through supportive
mechanisms. Giving training and preparing awareness creation about the
development of the saving and initiating the peopleto save through different
means of awareness.

35
REFERENCE

Prinsloo, J. W. (2019). Saving behavior of the South African economy. Occasional

Paper No.

14. Retrieved

on December 12, 2011 from

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8372AC83948E3B8042256B6C00

3B92CA/%24File/occ14 [Link].

Rodriguez, J. A. A., & Meyer, R. L. (1988). Analysis of saving behavior: In case of

Philippines.

Working Paper Series No 88-20. Retrieved on April 31, 2012 from

[Link]

[Link]

Chowa, n.a.(2016) saving performance among urban household in sub Saharan

[Link] bush, (2012). Macroeconomics, saving and consumption Chicago
university, USAEconomic report on Africa (2014)

Gujratati.d(2004). Basic econometrics, Harvard University press

Gujarati, d. N. (1995).basic econometrics. New York: McGraw hill, inc. 3rd edition.

Henry. J. Aaron. (2001) world book, vol.4 USA, Chicago.

Koutsoyiannis(1997). Modern microeconomics university of ottawaoontario

36
Chowa, n.a.(2016) saving performance among urban household in sub Saharan
Africa.

Dourn bush, (2012). Macroeconomics, saving and consumption Chicago

university, USA

Economic report on Africa (2014)

Gujratati.d(2004). Basic econometrics, Harvard University press

Gujarati, d. N. (1995).basic econometrics. New York: McGraw hill, inc. 3rd

edition.

Henry. J. Aaron. (2001) world book, vol.4 USA, Chicago.

Koutsoyiannis(1997). Modern microeconomics university of ottawaoontario

Lewis w.a. , (1954). Economics development with unlimited supply of labor, the
Manchester [Link].139-91.

M. Gregory Mankiew. (2000), macroeconomics, Harvard university press.

MOFED (2012), macroeconomics development in Ethiopia

Robert mc hennery, (1968), economic theory world book, vol.17.

Prinso, j.w. (2014) the saving behavior of the south african economy. South
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Appendix

WOLAITA SODO UNIVERSITY

COLLEGUE OF BUSINESS AND ECONOMICS

DEPARTMENT OF ECONOMICS

37
Questionnaire

This questioner is prepared by student of economics in CBE,WSU to prepare a first

degree completion research paper. It will get information on the determinants of urban
household saving in enebisie sar midir woreda. Therefore, filling this questioner will
have no any harm against the household head. Since your genuine and honest
response is highly regarded for successful accomplishment of the study, the researcher
will like to ask you respectfully to fill the questionnaire properly.

General instraction:

No need to write your name and house number

Put (√ ) mark on your correct choice for choice questions.

Complete your answer on the space provided for blank space questions.

It is more preferable if the household head fill it.

Household general characteristics

1. Sex of household? a. male b. female

2. Age of house hold(in years)__________

3. What is your marital status? Widowed married other

4. How many children do you have? Female ____male_____ total_____

5. Dependence ratio: below 15 age_____ above 65______ total

6. What is your education level (count in years schooling)_____________

7. Occupation: agriculture trade employment other

8. Employment:

8.1 What is your employment type? A. self-employ B. non self-

employed

8.2 What is your employment status? A. permanent B. temporary

9. Total income per month __________

38
10. Total expenditure per month_________

11. Do you save? Yes no

12. If yes on question number 11 how much do you save month from your
income ________

13. Do you use credit? Yes no

14. If you say question number 13 how much you receive?_____________

15. Which kinds of saving do you use? Compulsory save voluntary

16. If your income is increase what is your saving? Increasing

decreasing

17. Is there any additional number contribution allowance from your job? Yes
no

18. Based on question number 17 if say yes what types of allowance?

Transport allowance

House allowance medical allowance other

19. For what purpose do you save? Emergence for health service future
need

For holiday other

20. Do you have a budget plan? Yes No

21. Do you have your own house? Yes No

22. Do you have pipe line in your house? Yes No

23. What is your saving culture? Tradition modern

39
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