An analysis of the determinants of the aggregate domestic savings in Tanzania during the period 1966-1977.

This study emerges from the problem that over the period 1996-1977 the financing of development expenditure has been largely through borrowing from the banking system and external sources. These two sources of development revenue have serious implications for a developing economy like Tanzania. The monetary-expansion-impact of deficit financing has major consequences on both prices and foreign exchange reserves. Similarly, given the inadequate performance of export production and the trends in world market prices for export commodities from developing countries, the burden of debt servicing cannot be underestimated even when the aid terms may seem moderate in terms of interest rate and repayment period. It has been concluded that such a recourse to the banking system and external sources has been due to the inadequacy of domestic savings. The aim of this dissertation is therefore to find out empirically the set of factors which have influenced the savings behavior over the above mentioned period. Two working hypotheses have been formulated. According to the first hypothesis, the set of factors assumed to have influenced the savings bahaviour in the economy as a whole have been: gross-domestic product (GDP), tax revenue, external finance and inflation. The second hypothesis explains saving behavior in the government sector and the non-government sector the two sectors of the economy considered separately. Savings in the government sector have been assumed to be influenced by tax revenue, external finance and inflation. In the case of the non-government sector it has been assumed that the influence has been due to disposable income and inflation. Two underlying assumptions have been made in support of the hypotheses. The first assumption emphasizes that the problem is on the sources side of savings. The second assumption postulates that institutional structure, especially the financial structure for the mobilization of savings, does not constitute any serious problem. The study is covered in four chapters. Chapter one constitutes a survey of the yearly finances for development expenditure and the implications of both deficit financing and external finance. In chapter two the savings function in Tanzania is specified. The function is then estimated in chapter three. Single equation regression with Ordinary Least Squares estimators have been used in each case. In chapter four the results are summarized and the conclusions drawn.