Effect of Macro-economic Variables on National Saving in Kenya

Abstract

Low-savings countries tend to grow economically more slowly than high-savings countries. Accumulating capital enables a nation to raise its production and productivity, which in turn creates more opportunities for exports and other sources of supplementary revenue. The study's goal was to single out the most consequential macroeconomic factors influencing Kenya's economy. The research factors were GDP growth, M2 money supply, NFDR, CPI, and the dependence ratio among the elderly. This study was driven by the theoretical frameworks of the marginal propensity to save, the dependency ratio, and the Harrod-Domar growth theories. Data collection included the use of secondary resources. The current study shows that national savings are not correlated with any of the independent variables except for inflation. In addition, the research found that national savings were significantly related to the age dependence ratio, economic growth, money supply, and net FDI. The amount of national savings is shown to have a positive and substantial relationship with GDP growth, M2 money supply, and net FDI. However, the data further demonstrated that the age dependency ratio has a negative substantial link with national savings. Additional findings indicate that the model, which includes economic growth, money supply, foreign direct investment, consumer price index, and the age dependency ratio, not only strongly explains the level of national savings, but also has the potential to significantly forecast the level of national savings. Only the amount of money in circulation and the age dependence ratio are shown to have meaningful links with national savings, as the final results show. In contrast, the findings of this study showed that FDI, inflation, and economic growth had little effects on national savings. The findings of the research went on to show that each of the aforementioned macroeconomic parameters has a positive link with national savings that is negligible. It is suggested that in an effort to strengthen savings rates, government officials, Treasury policymakers, and legislators focus on and make use of macroeconomic difficulties, with a particular emphasis on money supply. Recommendations are also generated to financial institutions’ management to check on macro-economic factors when deciding on the liabilities management strategies. When the economic climate is unfavourable, financial institutions have the option of seeking out other types of liabilities in addition to deposit liabilities, despite the fact that deposit liabilities are their principal source of funding.