Determinants of household saving: Cointegrated evidence from Pakistan (1975-2011)

- Investigates the long run relationship between household saving and its determinants
- Estimates the long run relationship through Johansen cointegration technique
- There exists a long run relationship between household saving and its determinants.
- Inflation, public saving and old dependency ratio are significant in the short run.
- All variables become significant in the long run.

The purpose of this study is two-fold: firstly, to analyze the long run relationship between household saving and various socio-economic and demographic variables and secondly, to determine the short run and the long run impact of various socio-economic and demographic variables on the household saving rate in Pakistan. The relationship between household saving and various socio-economic and demographic variables is analyzed by applying Johansen cointegration analysis. Furthermore, Error Correction Model is also estimated in order to find out the convergence of the model towards equilibrium. The results show that there exists a long run relationship between household saving and the variables used in the study, while the result of Error Correction Model reveals that about 45% convergence towards equilibrium takes place every year.