The savings-investment process in Nigeria: an empirical study of the supply side
Many developing countries, under a crushing burden of debt and other external disequilibria, have adopted programmes to restructure their economies. A major cornerstone of such adjustment programmes is the liberalization of financial markets and a greater role assigned to market forces in the allocation of financial resources, and generally involve interest rate deregulation and relaxation or cancellation of the policy of directed credits. The policy of financial liberalization in developing countries seems to have been backed by the McKinnon-Shaw financial intermediation hypothesis which postulates that interest rates have a positive response to savings and economic growth (McKinnon, 1973; Shaw, 1973). The link between interest rate responsiveness and savings, as postulated by the McKinnon-Shaw hypothesis, is investment. However, behaviourally and operationally, savings and investment differ (Bhatia and Khatkhate, 1975; Fry, 1978), the transfer of savings to investment being dependent on a host of factors other than the real interest rate. Such factors include the availability of investment opportunities at rates of return exceeding cost of funds, the existence of private and social profitability differences, institutional constraints and the cost of administering funds. Thus, a study of the link between real interest rates and investment cannot be done solely via the McKinnon-Shaw hypothesis.
Year of publication: |
1994-03
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Authors: | Soyibo, Adedoyin |
Institutions: | African Economic Research Consortium |
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