Determinant of Private Saving: An Empirical Study on Malaysia

Abstract

The purpose of our paper is to narrow down the determinants of private saving in Malaysia with references from past researches. This is because of the importance of private saving when considering a country’s economic stability and conditions. With a good understanding of its determinants, effective policies can be devised and implemented to maintain economic stability and growth and also identifying harmful policies and correcting them. Data period is from 1985 to 2010. We use regression analysis (OLS) and ran several diagnostic tests on the data to address common assumptions of the model. Dependent variable is private saving while independent variables are GDP per capita, inflation rate, and government budget. The empirical findings support the theory of Life Cycle Model and Ricardian Equivalence existence in Malaysia. Malaysia’s inflation rate has a significant and positive relationship with private savings.