Domestic resource mobilization in Ethiopia: how sustainable is the current boom in domestic savings?

Abstract

This study aims to find out if the sequential policy interventions by the government to boost domestic savings are among the main factors for the boom in such savings observed during GTPI in Ethiopia and whether the impact these interventions is permanent or short-lived. In addition, it revisits and explores the determinants of gross domestic savings. The study applies (LM) unit root test with a structural break, an ARDL modeling approach, and it also relies on an analytical review.

The policy shocks applied to domestic savings have changed the long-term growth path of domestic savings permanently. In addition, macroeconomic instability, capital flight income and urbanization are the main variables that affect efforts of mobilizing domestic savings in Ethiopia. However, features of a vibrant financial sector, including secondary financial markets for an efficient use of available resources, reliability and transparency of the housing agency, and an effective demand for housing, are among the main conditions for sustained positive impacts of these policies. Accordingly, some policy recommendations are forwarded.

Key words: Saving, investment, economic policy, Ethiopia,
JEL Classification: D91, E21, E62, O16