Modelling determinants of savings and private investment in Tanzania

This study investigates the Determinants of Savings and Private Investment in Tanzania over the 1970 – 2005 periods. Four hypotheses were tested using Ordinary least squares from which long run relationship among the variables was established and Error Correction Model (ECM) for partial adjustment models to tackle the short run relationship that exists among the variables. The results suggest that increases in disposable income, deposit rate, and population growth have positive impact on savings. An increase in inflation is found to have negative impact on savings. Furthermore, increases in credit available for private sector, public investment, income per capita, and investment on human capital have positive impact on private investment. An increase in lending rate is found to have positive impact on private investment. An increase in lending rate is found to have negative impact on private investment. Moreover, savings, lending rate and private ownership are found to be significant in explaining private investment. These findings imply that disposable income, deposit rate, inflation, population growth, credit to private sector, public investment, income per capita, investment on human capital, lending rate and structural reforms play important role in influencing saving and private investment in Tanzania. Thus, policies that foster savings and private investment focusing on the above influential variables are highly recommended.