Impact of financial liberalisation on financial savings in uganda.

Financial liberalisation thesis posits that the removal of the legal restrictions on the financial system in the developing countries will tend to promote growth. One of the hypotheses is that other things remaining equal, positive interest rates will encourage the flow of financial resources to the formal financial institutions. This hypothesis and others related to financial liberalisation have been investigated in this study using the OLS estimation technique, and tests of cointegration by using data on Uganda. The study covers the 1973 to 1996 period. The econometric results from the study fails to lend support to the theorised positive relationship between financial savings and real interest rates in Uganda. Other packages in the financial sector reform policies have, however, been found to influence the level of financial savings positively. The specific factors include banking habits, population per bank branch office and the public's confidence in the banking system. The overall conclusion is that: although positive real deposit rates may be necessary, they are not on their own efficacious to increase the level of financial savings. This implies that the financial liberalisation policy need to be accompanied by other government policies, especially that aimed at overcoming structural bottlenecks in the financial system.