Financial sector reforms and household savings in Pakistan: An ARDL approach

Abstract

The study empirically examined the relationship between the financial sector reforms and household savings in
Pakistan by applying the ARDL cointegration technique on annual time series data for the years 1988 to 2008.
Empirical findings indicated that the financial liberalization index negatively created an impact on the
household savings in the short- run, as well as in the long-run, suggesting that financial liberalization slid
down the savings instead of enhancing it. Policy-makers should not rely on financial reforms to augment
household savings. However, per-capital income, agriculture sector GDP and remittances positively affected
the household savings in the short-run, while the real deposit rate negatively affected the household savings in
the long-run. It is important for the country to maintain high growth rate for the increasing per-capital income
which would contribute in enhancing household savings. As such, the growth of the agriculture sector and
remittances should also be a part of the policy. Nonetheless, the dependency ratio also negatively affected the
household savings in the short-run.