Academic journal article Journal of Economic Cooperation & Development

Macro and Socioeconomic Determinants of Turkish Private Savings

Academic journal article Journal of Economic Cooperation & Development

Macro and Socioeconomic Determinants of Turkish Private Savings

Article excerpt

This study investigates the effects on private saving rates of a number of macroeconomic and socio economic variables, by estimating an empirical private savings model for Turkey over the period 1975-2008. The following variables are found to increase savings: inflation, income level, terms of trade, real interest rates, credits, young dependency ratio, urbanization rate, economic crisis and political instability and the following variables are found to decrease it: financial depth, income growth, current account deficit, old dependency ratio and life expectations. Last but not least, we find that the private savings have strong inertia, and government savings tends to partially crowd out them. On the other hand, we also find that the female labor participation rate, the rate of self-employed employment and the rate of employment having university education decrease savings in Turkey after 1988.

(ProQuest: ... denotes formulae omitted.)

1. Introduction

Notwithstanding the importance of international flows of capital, one of the most important determinants of a country's investment rate is its own saving rate. Therefore, understanding the savings behavior of an economy is very important for understanding economic growth.

Savings behavior has been the focus of many theoretical and empirical studies. The two major theories proposed to explain savings are "the permanent income hypothesis" (Friedman (1957)) and "the life-cycle hypothesis" (Ando and Modigliani (1963)). The permanent income hypothesis differentiates permanent and transitory components of income as determinants of savings. Permanent income is defined in terms of the long time income expectation over a planning period, and transitory income is the difference between actual and permanent income. The idea here is that transitory changes in income will not have a significant effect on consumption and savings. According to the lifecycle hypothesis, on the other hand, individuals spread their lifetime consumption over their lives by accumulating savings during earning years and maintaining consumption levels during retirement. The theory highlights the effects of demographic factors, such as the age profile of the population, on savings.

Empirical studies on savings behavior have tested the permanent income hypothesis (e.g. Kelley and Williamson (1968), Gupta (1970 a, b)), the life-cycle theory (Ando and Modigliani(1963)), and have explored the effects of many variables on the saving rate, including demographic factors such as age groups (Kelley and Williamson (1968)), birth rates (Leff (1969 and 1971)) and dependency ratios (Gupta (1971)), as well as financial variables such as interest rates (Ouliaris (1981)) and inflation rates (Koskela and Viren (1985)). Many studies have focused on analyzing savings behavior for groups of countries and regions (see, for instance, Edwards (1996), Dayal-Gulhati & Thimann (1997) and MetinOzcan and Ozean (2000)), whereas some papers have focused on the determinants of savings in a single country (Ortmeyer (1985), Aron and Muellbauer (2000)). This latter approach is useful for providing a fuller picture of the determinants of the savings rate when a country has relatively strong data. Among developing countries, Turkey can be considered as a reasonably good choice in this respect, since it is one of the few countries for which the available data span a relatively longer time period and are more reliable. Moreover, understanding private savings in a developing country such as Turkey is particularly useful, since developing countries need to create the funds necessary for investment and to mobilize public and private savings for speedy development. In this respect, the current paper can provide some policy implications.

Tansel (1992) and Celasun and Tansel (1993) present two empirical models related to savings behavior in Turkey.2 The former study examines the relationship between household saving, income, and the number of children, and finds that at least in urban settings in Turkey (the data come from two major cities), children exert no significant influence on saving. …

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