Does the deposit interest rate stimulate savings in West Africa? An application of dynamic-panel data analysis

Saving is a crucial step towards investing. Several factors influence the decision to save, including religion, economic conditions, cultural attitudes and the interest rate on savings accounts. This study investigates low savings rates in West Africa and tries to find out whether higher interest rate would stimulate regional saving. The lack of empirical understanding of how interest rate affects saving behaviour challenges economic development. Using the lifecycle hypothesis, the study analysed savings as a function of a deposit interest rate, per capita income and the inflation rate through panel autoregressive distributed lag analysis. The findings show that deposit interest rate does not significantly impact savings in the region, in contrast to per capita income and inflation. The conclusion of the study is that the relationship between interest rates and savings is complex and influenced by multiple factors other than the deposit interest rate. The study suggests implementing policies that promote long-term investment strategies beyond relying on interest rates, which helps balance immediate investments with savings and encourages firms to set aside funds for future use.