Does Income Level affect Saving Behaviour in Pakistan? An ARDL approach to co-integration for empirical assessment

The purpose this study was to identify the short-run and long-run relationship between income level and saving behaviour in Pakistan along with inflation and age dependency ratio by using co-integration and error correction model (ECM) for the period of 1985-2009. Auto regressive distributed lag (ARDL) model, bounds testing approach to co-integration were used to delineate the short- run and long –run relationship between income level and saving behavior. It is found that in short and long-run, income levels acquire highly significant and positive relationship with the saving behavior in case of Pakistan. This was the first attempt made by the researcher to estimate the income level effect on saving behaviour in case low income developing country like Pakistan. Given that Pakistan capital market is growing, the empirical assessment has direct policy relevance.