Determinants of Domestic Savings in Pakistan: An Economic Analysis

Abstract

The study explores the influence of various economic factors, namely interest rate, unemployment rate, inflation rate, and worker remittances, on domestic savings in Pakistan. To assess the stationarity of these variables, the Augmented Dickey-Fuller unit root test is employed. Different lag selection criteria are applied to determine the maximum number of lags, with a maximum of two lags chosen. To examine the cointegration among the variables in the model, the Autoregressive Distributed Lag (ARDL) model is utilized. Cointegration analysis is crucial for understanding the long-term equilibrium relationship between the variables and determining whether they move together in the long run. By employing the ARDL model, the study aims to identify whether changes in interest rate, unemployment rate, inflation rate, and worker remittances have a significant and lasting impact on domestic savings in Pakistan. Based on the estimated results, it is evident that interest rate, inflation rate, unemployment rate, and worker remittances significantly influence domestic savings in Pakistan. These findings underscore the importance of economic policies targeting these factors to promote savings mobilization within the country. The government of Pakistan has been actively pursuing initiatives to increase the overall rate of saving, recognizing its importance for economic development and stability. However, the effectiveness of these efforts has been hindered by challenges such as low incomes, high unemployment, and inadequate implementation of socio-economic policies. This study makes a valuable contribution to the existing literature by providing a comprehensive analysis of the determinants of domestic savings in Pakistan. By considering multiple economic factors simultaneously, the study offers insights that can inform policymakers and stakeholders in their efforts to formulate more effective strategies for promoting savings and fostering economic growth. Moving forward, it is essential for the government to address underlying issues such as income inequality, unemployment, and policy implementation gaps to create an environment conducive to higher domestic savings rates. Additionally, continued research and analysis in this area will be instrumental in refining policy approaches and addressing the complex challenges facing Pakistan's economy.