DETERMINANTS OF RURAL HOUSEHOLD SAVINGS BEHAVIOUR: THE CASE OF TOMATO FARMERS IN GHANA

Abstract

Much as savings plays an important role in economic development process, it has been neglected very much in favour of credit in rural communities particularly in developing countries. Against this backdrop the study sought to determine tomato farmers’ capacity to save and also to examine the determinants of savings among this group of farmers in three regions of Ghana namely Ashanti, Brong Ahafo and Upper East regions. Data was collected with the aid of structured questionnaire. Descriptive statistics and Ordinary Least Squares (OLS), were used to analyse the data. Empirical results based on four models of the savings functions advocated by Keynes, Klein and Landau showed the marginal propensity to save (MPS) of the respondents to be 0.88 (88%), indicating a relatively high levels of savings among the respondents. This runs counter to Keynes’ assertion that the equalization of income distribution increases aggregate consumption, and hence, reduces savings. The study also established the hypothesis of non-linearity between savings and income among the respondents. This implies that due to lack of permanent income sources among rural dwellers, they tend to consume less of their income in order to save more for the “rainy day”. The results of the study have demonstrated that rural households particularly tomato farmers have the capacity to save which is indicated by their relatively high marginal propensity to save of 88%. This finding makes a convincing case for financial intermediaries to extend the needed financial services to rural households.

Keywords

• savings
• marginal propensity
• tomato farmers
• income
• ghana