Determinants of Rural Household Saving: The Case of North Shewa Zone, Amhara Regional State, Ethiopia

Abstract

Long-term economic growth requires capital investment – in infrastructure, education and technology, business expansion, and so forth – and the main domestic source of funds for capital investment is saving by household. In developing countries, economic fluctuations and climate risk lead to important income variations and leave the households vulnerable to severe hardship and challenges. Moreover, their social coverage is restricted and the credit and insurance markets are not well developed and civilized. The study aims at investigating the determinants of households’ saving in north shewa zone of amhara region. Data of 150 respondents are drawn through field survey in 2017/18 by adopting multistage random sampling technique. Questions are asked directly from head of household about their education level, family size, age, amount of savings per year in birr, assets, income etc. Sample contains information about rural households. Ordinary Least Square method is used for estimation. Ordinary Least Square method analysis presents determinants of households’ saving in the zone. Based on the result it is concluded that, total dependency rate, total income of household and family size significantly raise household savings. Education of household head, sex, household landholdings, marital status, and livestock size of the households reduce saving level of households. This study also supports existence of Life cycle hypothesis. Based on the results, study suggests that Government should provide free education materials and scholarships to the students at school, college and university levels. So that household can save more rather than spending on their education. Institutions that are involved in development projects need to increase their support to improve the business environment of the rural populations. Such decisions include improvement in the Transport and communication infrastructure. Also of importance is increased involvement of the government in services that support economic activities in the rural areas such as, electricity, water, extension services and marketing channels. Future research must be conducted which takes into account nonmonetary saving of rural households.