Domestic Saving Under the Perspective of Interest Rate, unemployment and inflation in Pakistan: A Time Series Analysis

Abstract

Domestic savings play a pivotal role in the process of economic growth as saving increases the amount of physical capital. Pakistan has issue of low aggregate saving for attaining and maintaining economic growth. This study has examined the impact of interest rate, unemployment rate, inflation rate and worker remittances on domestic savings in Pakistan. For examining the stationarity of the variables Augmented Dickey-Fuller unit root test is used. Maximum 2 lag are selected by following different lag selection criteria. Autoregressive Distributed Lag model is used for examining the cointegration among the variables of the model. On the basis of estimated results, it is concluded that interest rate, inflation rate, unemployment rate and worker remittances are playing important role in determining domestic savings in Pakistan. The government of Pakistan has been trying to increase overall rate of saving and for this purpose it introduces many schemes. But government is unable to get required results in this concerns because of low incomes, unemployment and improper implementation of the socio-economic policies. This study has tried to contribute in literature as existing literature hardly did this type of exercise.