Microeconomic Determinants of Household Savings in Nigeria

Abstract

This work investigates microeconomic determinants of savings in a Nigeria using household survey data. Tobit and Heckman selection model were used to ascertain the determinants of saving and decision to save. Our results show that household socioeconomic characteristics are important determinants of saving. Specifically, results show that land ownership has positive effect on the amount of savings but the result is not statistically significant. Household size has negative effect on savings and not statistically significant. Being a farmer is associated with about 7.42 percent decline in the amount of savings. The marginal effect of non food expenditure is positive and statistically significant. The marginal effects show that an increase in food expenditure by N1000 will increase the amount of savings by 11.6 percent (N116). However, an increase in household per capita expenditure leads to about 20.4 percent decrease in savings and this is statistically significant. The results further show that living in poor environment, which is proxied by cooking by firewood or charcoal and non-sanitary toilet, are associated with 15 percent and 10.5 percent decrease in household savings respectively. This means that household poverty conditions cause the ability to save to decrease. The results show that if the household lives in own house, the ability to save increases by about 5 percent, other things being equal. Our findings show that the variables that determine how much to save are different from the variables that determine the decision to save at least in terms of statistical significance and sign of the marginal effects. More specifically, landownership increases the probability that the household will save by 8.11 percent and this is statistically significant but this does not significantly determine how much the household can save significantly as shown in the Tobit results. The basic conclusion of this work is that household socioeconomic characteristics are important in saving accumulation in Nigeria and they should not be ignored by policy if the country wants to increase capital accumulation through saving.