Effects of Monetary Sector Financial Liberalization on Domestic Savings in Selected ECOWAS Countries

Abstract

There has been rapid decline in the rate of saving in the ECOWAS countries. More so, monetary sector financial liberalization in the region has not yielded a fruitful outcome as the countries have suffered widened disparity of lending and deposit rates, high inflation and continuous decline in economic growth. The study examined the effects of monetary sector financial liberalization in the ECOWAS countries of Benin, Cote d’ Ivoire, Ghana, Liberia and Nigeria from the period 1981-2019. The study anchored on the frameworks of the life cycle and the financial liberalization hypotheses employed the panel Vector auto regression (VAR) estimation technique. The variables of the study are household saving (dependent) and domestic credit provided by the financial sector, growth of GDP, interest rate spread, broad money supply and financial liberalization dummy, and gross fixed investment as independent and control variables. The data were sourced from World Bank Development Indicator (WDI, 2020) and the African Development Bank Database (2020). The study showed that domestic credit has a significant positive effect on domestic saving while gross fixed capital formation has a negative effect on domestic saving. The study further revealed that labour force and money supply are negatively related to household saving in the ECOWAS countries within the reviewing period. From the empirical evidence, the study recommended among others, the need for the Government to implement restrictive monetary policy measures that will curtail excessive money supply in order to reduce inflation spiral and improve household saving in the ECOWAS countries.