Role of Financial Development in Economic Growth: Evidence from Savings and Credits Cooperative Societies in Tanzania

Abstract

In this paper we examine the role of Savings and Credits Cooperative Societies (SACCoS) in the economic growth of Tanzania by answering two main questions. First, are financial services in SACCoS significant factors for economic growth? Second, are financial services in SACCoS Granger causing economic growth? We use credits-real GDP per capita ratio and savings-real GDP per capita ratio as proxy measures for financial services and real GDP per capita for economic growth. We employ Newey-West standard errors regression model and Wald Granger causality tests in analysis. The sample period is 1990-2012. Data are from the Ministry of Agriculture, Food and Cooperatives, World Economic Outlook (WEO) database, International Monetary Fund (IMF). The findings show that, there is a strong positive association between the financial services and the economic growth, also there istwo-ways Granger causality between them. However, we find out that savings are much important in fostering economic growth as compared to credits/loans. These criteria make SACCoS the distinct microfinance institutions in the economic development in Tanzania and therefore should be promoted with more emphasis on the savings objective.

Determinants of Saving Among Rural Households in Ethiopia: The Case of Wolaita and Dawro Zone, Snnpr.

“…The result is in accord with previous study by Subhashree, (2013) indicates that a large and rapid increase in income tends to raise the rate of household savings because household capacity to save increases with household income. This result is also consistent with the other empirical studies by Horioka and Wan,(2007), Qin and Ndiege, (2013). The interest rate was also found positive and significant in determining household saving at 1 %.…”

The Causal Relationship of Microfinance and Economic Development: Evidence from Transnational Data

“…We present test results as in line with Qin et al (2013) in Table 3. In order to achieve better presentation of results we refrain from tabulating equations where due to data availability no test results could be yielded.…”

“…We then run Granger causality tests (Hassan et al, 2011;Nwakanma et al, 2014;Qin & Ndiege, 2013) as the multivariate time series diagnostic approach for determining whether past values of one variable are useful for predicting another one. In particular, based on the VAR models we test whether, after controlling for past y, past z can forecast y t .…”

Variables for Modeling SACCOS in Tanzania

“…Hence SACCOS have solved the problem of capital inadequacy for rural people in Tanzania. Qin and Ndiege (2013) and Bwana and Mwakujonga (2013) revealed that SACCOS significantly contribute to GDP of Tanzania. The government of Tanzania promotes the establishment of SACCOS even to very remote areas because of their importance contribution to the country economy (Wangwe, 2004).…”