Examining Long Run Relationship between Household Debt and Household Savings in South Africa – An Error Correction Model and Granger Causality
R Ncwadi, Kholiswa Malindini
on Google Scholar
13 July, 2016
17 August, 2016
26 September, 2016
25 October, 2016
Savings is vital to maintain and expand an economy’s capital structure
and economic growth. Saving is an important component of economic growth
model in that investments are created from savings. Investment allows
an opportunity to improve technology and thereby increasing levels of
productivity. Increasing levels of productivity lead to increased real
wages. The end result of increasing real wage is improvement of the
welfare of the nation. Nevertheless, savings have been declining over
the years, placing the South African economic development agenda in
jeopardy. Since 1984, savings have deteriorated significantly, reaching a
mere 15.3 percent of GDP in 2009 (SARB, 2010). The decline in savings
at the beginning of the 1980s coincided with increased access to credit
by households. Alongside these developments net wealth of the households
increased relative to their disposable income (South African Reserve
Bank (SARB), 2002). Mutyaba (2013) states that savings declined
considerably during the last decade in South Africa. In 2006, for
example, savings turned negative. In contrast, during the same year the
debt increased to its highest level ever Mutyaba (2013). Clearly
voluntary savings are becoming even more unaffordable by a number of
households in South Africa, mainly amongst the low earners (Chiroro,
2010).This study uses Engle & Granger cointegration approach and
granger causality to examine the link between debt and savings in South
This paper makes a contribution towards the household savings discourse
in South Africa. The use of Engle and Granger cointegration approach to
examine the link between household savings and household debt in this
paper is one of the very few studies in this area in South Africa. Keywords:
Household savings, Household debt, Cointegration, error correction, Granger causality, Causal relationship.
Aron, J. and J. Muellbauer, 2000. Personal and corporate saving in South Africa. World Bank Economic Review, 14(3): 509-544.
Brooks, C., 2008. Introductory econometrics for finance. 2nd Edn., UK: Cambridge University Press.
Chiroro, B., 2010. Savings should drive economic recovery and economic growth in South Africa. South Africa: South African Savings Institute and Old Mutual.
Cronjé, M. and A. Roux, 2010. Savings culture for the black middle class in South Africa. USB Leaders’ LAB, 4(2): 22-27.
Davidson, P., 2007. Setting the record straight on a history of Post Keynesian economics. Journal of Post Keynesian Economics, 26(2): 245-272.
Dimant, T., 2012. The economy, South Africa survey 2010/2011. Pretoria: SAIRR.
Engle, R.F. and B.S. Yoo, 1991. Forecasting and testing in cointegrated systems. Journal of Econometrics, 35: 143-159.
Gujarati, D., N., 1995. Basic econometrics. 3rd Edn., New York: McGraw-Hill International Editions.
Gujarati, D.N., 2004. Basic econometrics. 4th Edn., New York: McGraw-Hill International Editions.
Hess, P., 2010. Determinants of the adjusted net saving rate in developing economies. International Review of Applied Economics, 24(5): 591-608.
Hoosain, A., 2012. The relationship between consumer credit and consumption spending in South Africa. South Africa: Gordon Institute of Business Science, University of Pretoria.
Joo, S., 1998. Personal financial wellness and worker job productivity. Unpublished Doctoral Dissertation, Blacksburg: Virginia Polytechnic Institute and State University.
Kim, J., 2000. The effects of workplace financial education on personal finances and work outcomes. Unpublished PhD Thesis. Blacksburg: Virginia Polytechnic Institute and State University.
Le Roux, R., 2012. Savings wake-up call for South Africa (Mail & Guardian Newspaper Article) Dated (01 August 2012).
Lorgat, M., 2003. Enabling worker finances: The effects of rising costs of living and debt on worker finances. Durban: Working Paper. South African Sociological Association.
Marcus, G., 2012. Statement of the monetary policy committee. Available from https://www.resbank.co.za/Publications/Pages/Publications-Home.aspx.
Mnyande, M., 2010. The role of monetary policy in influencing savings behaviour in the South African economy. South Africa: SARB.
Mutezo, A., 2014. Household debt and consumption spending in South Africa: An ARDL-bounds testing approach. Banks and Bank Systems, 9(4): 73-81.
Mutyaba, F., 2013. Determinants of household savings and effects of household savings on the stock market in South Africa and China: A comparative study. Johannesburg: University of the Witwatersrand.
National Credit Regulator, 2012. Annual Report (2011/2012). South Africa: NCR.
Ojah, K. and T. Mokoalel, 2010. Possible effective financing models for entrepreneurship in South Africa: Guides from microfinance and venture capital finance. African Finance Journal, 12(1): 1-26.
Paramaiah, C. and O.M. Akway, 2008. Econometric analysis of personal consumption expenditure in Ethiopia. Andhra Pradesh. India: The ICFAI University Press.
Park, J.Y. and P.C.B. Phillips, 1988. Statistical inference in regressions with integrated processes: Part 1. Econometric Theory, 4(03): 468-497.
Phillips, C.B. and P. Perron, 1988. Testing for a unit root in time series regression. Biometrika, 75(2): 335-346.
Phillips, P.C.B. and B.E. Hansen, 1990. Statistical inference in instrumental variables regression with 1(l) processes. Review of Economic Studies, 57(1): 99-125.
Prinsloo, J.W., 1995. Private saving sector in South Africa. South African reserve bank’s quarterly bulletin September. Pretoria: SARB. pp: 1-35.
Prinsloo, J.W., 2000. The saving behaviour of the South African economy, Occasional Paper No.14. Pretoria: South African Reserve Bank.
Rajan, R. and L. Zingales, 2003. The great reversals: The politics of financial development in the twentieth century. Journal of Financial Economics, 69(1): 5–50.
SARB, 2010. Annual Economic Report; Pretoria: South African Reserve Bank.
SARB, 2014. Quarterly bulletin, various issues. Pretoria: South African Reserve Bank, Pretoria.
South African Reserve Bank (SARB), 2002. Quarterly bulletin, various issues. Pretoria: South African Reserve Bank.
Todaro, M.P. and S.C. Smith, 2011. Economic development. 10th Edn., New York: Pearson Addison Wesley.
West, K.D., 1987. Asymptotic normality, when regressors have a unit root. Econometrica, 56: 1397-1417.
This study received no specific financial support.
The authors declare that they have no competing interests.
All authors contributed equally to the conception and design of the study.
( 1 )
Examining Long Run Relationship between Household Debt and Household Savings in South Africa – An Error Correction Model and Granger Causality
( 2 )
Study on Environment and Energy Using Belonging Materials
( 3 )
Driving Role of Institutional Investors in the Indian Stock Market in Short and Long-Run – An Empirical Study
( 4 )
Long-Run Relationships and Causality Tests Between Military Expenditure and Economic Growth in India
( 5 )
Structural Breaks and the Long-Run Stability of Demand for Real Broad Money Function in Nigeria: A Gregory-Hansen Approach
( 7 )
Food Security Amongst Small Grains and Long Grains Smallholder Farmers of Masvingo Province in Zimbabwe
( 8 )
Does External Borrowing Affect Economic Growth? A Revisit of the Age-Long Debate for Nigeria
( 9 )
The Role of Social Security Program for Enhancing Seniors Longevity
( 13 )
Compliance Behaviour in State-Run Fisheries: Situating Lake Chivero in a Policy Perspective
( 15 )
Consideration the Relationship Between Information Communications Technology and Economic Growth in Top 10 Economic
( 16 )
Relationships Between Leadership Roles and Project Team Effectiveness as Perceived by Project Managers in Malaysia
( 17 )
Relationships among Team Trust, Team Cohesion, Team Satisfaction and Project Team Effectiveness as Perceived by Project Managers in Malaysia
( 19 )
Study of the Relationship between Economic Growth and Inflation: Application to the Countries of the South Side of the Mediterranean: A Panel Data Approach
( 20 )
Relationships between Financial Development and Economic Growth: A New Approach by Inputs
( 21 )
Moderating Effect of Demographics on Monetary Motivation and Employees Job Performance Relationship: Evidence from Malaysia
( 22 )
Moderating Effects of Project Management Experience, Project Team Size, Project Duration and Project Value Size on the Relationship between Project Manager’s Leadership Roles and Project Team Effectiveness in Malaysia
( 23 )
The Mediating Effect of Market Orientation on the Relationship between Entrepreneurial Orientation Dimensions and Organizational Performance: A Study on Banks in Libya
( 24 )
An Assessment of the Relationship between Budget Deficit Syndrome and Consumer Welfare in Nigeria (1985 – 2014)
( 25 )
Causal Relationship between Imports and Economic Growth in Zimbabwe: An Empirical Analysis 1975 – 2013
( 26 )
Education and Income Relationship in Turkey
( 27 )
Market Share and Profitability Relationship: A Study of the Banking Sector in Nigeria
( 28 )
The Lead-Lag Relationships between Construction Investment and GDP: Granger Causality Tests and Impulse Responses Using Japanese Data
( 30 )
The Relationship between Currency Conversions and International Business Transactions: Small Businesses and Travelers
( 31 )
The Moderating Effect of Governance Mechanisms on the Relationship Between Innovation Strategy and the Performance
( 32 )
An Investigation of the Relationship between Manufacturing Output and Economic Growth : Evidence from Nigerias Data Set
( 33 )
The Transitional Relationship between Economic Growth and Exchange Rate in Ghana: An Empirical Approach
( 34 )
The Relationship between Financial Development, Economic Growth, and Inflation: Evidence from Southeast Asia
( 35 )
The Mediating Effect of Financial Self-Efficacy on the Financial Literacy-Behavior Relationship: A Case of Generation Y Professionals
( 37 )
New Evidence on the Link Between Income Inequality and Misery Index: A Nonlinear Time Series Analysis
( 40 )
The Nexus between Financial Crisis and Household Consumption: Evidence from Emerging Countries
( 43 )
The Interactions between Culture, Global Mindset and Leadership in Global Context
( 44 )
The Association Between Corporate Risk Disclosure and Firm Performance in Emerging Country – The Case of Egypt
( 46 )
Republic of Zimbabwe National Water Policy: A Desk Review of the Gaps between the Policy and Its Implementation
( 49 )
The Correlation Between the Palestinian Civil Society Institutions and the Universities (Status: The Palestine Technical University Kadourie with Tulkarm Institutions)
( 50 )
Measuring the Gap Between the Syrian Accounting Qualifications and the International Accounting Education Based on IES 2 and IES 3
( 52 )
Development of the National Economies and the Foreign Trade Relations between Ukraine and Bulgaria (In the Period 2005-2014)
( 54 )
A Theoretical Analysis Upon the Environmental Health and Justice Issue: A Case Study for a Comparison Between G20s Unitary and Federal Members
( 57 )
Interfaces Between Road Infrastructure and Poverty in Africa: The Case of Malawi, 1994-2013
( 58 )
The Link Between Agricultural Budgetary Allocation and Economic Growth in Nigeria
( 61 )
Measuring and Assessing the State of Technological Innovations and the Level of Interaction between Rice Processors and Stakeholders in Rice Processing Industry in Nigeria
( 62 )
The Nexus between Urbanization, Energy Demand and Healthcare in Bangladesh
( 63 )
Correlation between Financial Difficulties and Financing Strategies among Market Stallholders in Batangas City
( 66 )
Problems of Bilateral Trade Deficit between Bangladesh and India: A 2SLS Regression Analysis
( 67 )
Exploring the Asymmetric Linkage between Commodity Prices and Fiscal Performance in Nigeria
( 68 )
Nexus between Non-Oil Sectoral Contribution and Economic Growth in Nigeria 1981-2018
( 71 )
Role of Foreign Investment and External Debt in Determination of Exchange Rate
( 72 )
The Impact of the Global Financial Crisis on the Debt, Liquidity, Growth, and Volume of Companies in Palestine Stock Exchange
( 73 )
Does Managerial Emotional Biases Affect Debt Maturity Preference? Bayesian Network Method: Evidence from Tunisia
( 74 )
The Effect of Public Debt on Domestic Product and Unemployment (An Empirical Study on the Palestinian Economy)
( 76 )
External Debt and Economic Growth: Two-Step System GMM Evidence for Sub-Saharan Africa Countries
( 77 )
External Debt and Nigeria's Sovereignty
( 78 )
Fiscal Reaction Functions and Public Debt Sustainability in Nigeria: An Error Correction Mechanism Approach
( 82 )
The Technical Efficiency of Collective Irrigation Schemes in South-Eastern of Tunisia
( 83 )
Does the Mena Countries May Converge in GDP to Southern European One? The Effects of International Trade
( 85 )
Income Elasticity of Poverty: Estimates for South Asian Countries
( 87 )
Rural Roads Infrastructure and Agricultural Products Distribution: A Focus on Akure South Local Government Area, Ondo State, Nigeria
( 88 )
On the Prediction of the Inflation Crises of South Africa Using Markov-Switching Bayesian Vector Autoregressive and Logistic Regression Models
( 89 )
Participatory Processes in Planning for Self-Help Housing Provision in South Africa: Policies and Challenges
( 90 )
Health Care Outcomes, Malnutrition and Food Security in Southern Africa Development Community: A Quantile Regression Approach
( 92 )
Re-Engineering Nigerian Economy through Human Capital Development: A Case of Manufacturing Firms In Southern Part of Nigeria
( 93 )
Making Poverty A History in Africa: The Role of the G8
( 94 )
How Telecommunication Development Aids Economic Growth: Evidence from Itu Ict Development Index (IDI) Top Five Countries for African Region
( 95 )
Institutionalising and Mainstreaming Policy Analysis Culture in African Environments
( 96 )
The Role of Information and Communication Technology in Rural Socio-Economic Development in Africa
( 97 )
An Assessment of the Impact of Information Communication Technology (ICT) On the Administration of Public Records: A Case Study of the Bolgatanga Municipal Assembly in the Upper East Region of Ghana-West Africa
( 98 )
Appointment of Directors and Performance of Deposit Money Banks in Sub Saharan Africa: Do We Need More Executive or Non-Executive Directors?
( 99 )
Corporate Funding and Sustainability of Non- Governmental Organizations in Africa
( 100 )
Academic Mobility for Engineering and Technology Graduates in Africa: Lessons and Experiences from the Implementation
( 101 )
A Review of Cross Border Higher Education in Africa: Focus on Graduate Level Training in Engineering and Technology
( 104 )
Effect of Budget Defict on Private Investment in East African Community for the Period 1981-2015: A Panel Data Analysis