Abstract
M.Com. (Economic Development and Policy Issues)
There is an observable correlation, over time, between domestic savings rates and GDP growth rates: countries with relatively high savings rates over time also enjoying comparably high GDP growth rates. Aggregate saving in South Africa has been in decline and, currently, is at a historic low. Unflattering comparisons between South Africa and faster-growing emerging market economies have led to suggestions that South Africa's low domestic savings rate poses a constraint on the country's ability to grow faster.
While the literature, both international and domestic, is relatively rich in studies on the determinants of foreign direct investment as well as the determinants of savings, none of the work done on South Africa has made use of disaggregated savings data to understand whether there is an observable difference in the marginal propensity to save of these economic sectors. In order to successfully raise the level of saving, much more focus needs to be applied to whether there is a difference in the relationship between growth and the components of aggregate saving i.e. which „source‟ of saving if any would yield the greatest impact on GDP and therefore should be encouraged from a policy point of view.
The results of the econometric analysis demonstrate that the greatest responsiveness of savings to GDP growth occurs amongst corporates. Since corporates have a choice between retaining earnings and distributing earning as dividends (thus increasing household income) it is clear that tax-rates are an important lever through which government can encourage savings. In essence, a greater level of savings may be achievable if corporates are encouraged to retain earnings, rather than distribute these as dividends to the household sector which has exhibited a relatively weak propensity to save.