Impact of Interest Rate Deregulation on Gross Domestic Savings in Nigeria

Mathias A. Chuba
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Mathias A. Chuba: Department of Economics, Achievers University Owo, Km 1, Idasen-Ute Road, P. M. B. 1030, Ondo State, Nigeria

International Journal of Research and Innovation in Social Science, 2021, vol. 05, issue 12, 522-528

Abstract: Nigeria embarked on interest rate deregulation in August, 1987 in order to increase gross domestic savings through an increase in interest rate. The results of previous studies with respect to the impact of interest rate deregulation on gross domestic savings in Nigeria are mixed. This paper argues that interest rate deregulation does not have positive impact on gross domestic savings in Nigeria because savings depends on income rather than interest rate. The main objective of this paper is to determine the impact of interest rate deregulation on gross domestic savings in Nigeria from 1970-2019 using a dummy variable regression technique. The result of the investigation indicates that interest rate deregulation has an insignificant negative impact on gross domestic savings in Nigeria. The gross domestic product has a significant positive relationship with gross domestic savings in Nigeria. The Keynesian proposition that savings are mainly determined by income rather than interest rate is applicable in Nigeria. The classical theory of interest rate and the theory of high interest rate policy that was popularized by McKinnon (1973) and Shaw (1973) are not applicable in Nigeria. The target of economic policy should be gross domestic product and not interest rate because naturally gross domestic saving will increase if gross domestic product increases in Nigeria.

Date: 2021
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