Paper
Saving in Sub-Saharan Africa
Why have household savings declined in Sub-Saharan Africa?
33 pages
This paper looks at comparative savings trends in sub-Saharan Africa from 1980 to the present day. It sees that:
- Savings rates have shown a consistent decline in the last thirty years even though data is not fully reliable;
- The savings are dominated by household savings;
- Household savings are primarily in the form of non-financial assests;
- The composition of household portfolios is affected by liquidity preference, which is derived from perceptions of liquidity constraints and the ease of asset-switching;
- Financial savings are mainly directed to informal markets and institutions.
The paper concludes that the savings decisions of households, and their equilibrium portfolio allocation depend on:
- General considerations such as risk, liquidity constraints and the intertemporal allocation of lifetime resources;
- Asset-specific transaction costs: adminstrative costs like transport, congestion, waiting and opportunity costs to earnings, or the cost of the deposit-taker defaulting on the contract - institutional risk.
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