Abstract:
The objective of this study is to investigate the short run and long run factors affecting
gross domestic saving in Ethiopia using time series data covering the time period of
1985 to 2020. To achieve this desired objective, the study employed Johanson
cointegration test to identify the existence of long run relationship between variables after
data stationarity has ensured using Augumented Ducky Fuller test. The results reveal that
there are up to four cointegrating equationtion in the model. The study also employed
Vector Error Correction Model to identify the impacts of factors affecting gross domestic
saving in Ethiopia both in short run and lang run. The results reveal that only gross
domestic product, real interest rate, annual broad money growth rate and government
final consumption expenditure have statistically significant effect on gross domestic
saving in Ethiopia in the short run. In long run, Illicit Financial Flows, government final
consumption expenditure and annual broad money growth rate have statistically
significant negative impact on gross domestic saving while official development
assistance, gross domestic product, real interest rate, and inflation rate have statistically
significant positive effect on gross domestic saving cetries purbus. The Granger causality
test results reveal that there is unidirectional causal relationship between gross domestic
saving and illicit financial flows, real interest rate, annual broad money growth rate,
official development assistance and inflation rate that runs from these variables to gross
domestic saving except for inflation rate that runs from gross domestic saving to inflation
rate. Unlike other variables, gross domestic product and government final consumption
expenditure have bidirectional causal relationship with gross domestic saving in Ethiopia
over the study period.
