Financial Reforms and Private Savings in Pakistan

Abstract

This study investigates the influence of a few factors on private savings in
Pakistan, in particular it examines the affect of financial reforms on savings.
In this context the importance of reforms is assessed using the principal
component method to construct an index of financial reforms using data for
the period 1976-2008. The Auto Regressive Distributed Lag model and its
Error Correction version is adopted to assess the determinants of private
savings. It is found that private savings respond only positively to income.
Uncertainty about future income, interest rate and financial reforms all seem
to affect private savings negatively. The hypothesis that savings may increase
substantially with financial reforms is not accepted in case of Pakistan. In
fact despite a prolonged period of financial reforms there is no marked
increase in private savings to GDP ratio.