The relationship between financial sector development and savings mobilisation in South Africa: An empirical study

ABSTRACT

This article examines the link between financial sector development and savings mobilisation in South Africa for the period 1980–2012. Taking the life-cycle hypothesis as our theoretical background and using Johansen co-integration that allows for hypothesis testing, the empirical results revealed a long-run relationship between savings, interest rates and financial sector development. We find an inverse relationship between the interest rate and savings, implying that South Africans are net borrowers because the income effect overwhelms the substitution effect. This in part explains the low level of savings in recent time. Important policy lessons for boosting the national savings rate are discussed.

KEYWORDS:

• Financial sector development
• savings
• South Africa
• Johansen co-integration

JEL:

• E21
• O16