Socio-economic Characteristics and Household Savings: An Analysisof the Households’ Saving Behaviour in Pakistan

Publication Year : 1992

Domestic resource mobilization is one of the key determinantsof sustained economic growth. Pakistan’s perfonnance with regard todomestic resource mobilization has been poor despite maintaining arespectable economic growth rate. Why is the savings rate so low inPakistan? In this paper we analyse the household savings behaviour inPakistan, using micro level data of the Household Income and ExpenditureSurvey (HIES) for the year 1984-85. Three different non-linear savingsfunctions attributed to Keynes, Klein, and Landau are estimatedseparately for the urban and the rural households, using the OrdinaryLeast Squares (OLS) technique. It is found that the average income andsaving of an urban household are considerably higher than those ofoverall Pakistan or a rural household. However, contrary to the generalbelief, it is found that the propensity to save of the rural householdsis much higher than that of their urban counterparts. The dependencyratio and the various categories of education are found to have anegative influence on household savings. No systematic relationship isfound between savings and the employment status and occupation of thehousehold head. It is found, however, that saving increases with age buttends to decline when the age crosses a certain limit – a findingconsistent with the Life Cycle Hypothesis.

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