THE IMPACT OF ECONOMIC INDICATORS ON GROSS SAVINGS: THE CASE OF NORTH MACEDONIA

Abstract

Structural policies play a crucial role in influencing savings whether is private or public. To properly examine the relationships between the structural indicators and savings level this study investigates their connections in the case of North Macedonian economy. Savings rates depending on the region they can be widely dispersed and the development of technology and innovation can be a driving force. Empirical studies have been suggesting that policy reforms by changing the macroeconomics conditions can influence savings. A particular importance in improving the savings ratios in medium and long term throughout the literature is shown to have had the policies that impacted productivity growth. This paper will start with a comparative method to present the evolution of gross saving as a percentage of GDP for the period 2000-2024 between North Macedonia and European Union. Savings is calculated as gross national income less total consumption, plus net transfers. At the start of the period in 2000 gross saving between two countries where at equal level, before starting to decrease for North Macedonia, reaching a minimum in 2002. From this low point, gross savings started to increase, surpassing that of the European countries in 2010 and reached a peak in 2017 around 30%. Afterwards, savings decreased and remained stable at 27 % level until 2024. In contrast to savings rates of European Union which remained stable at 23 % throughout the considered period, for North Macedonia this rate has a steady upward trend. An econometric model is constructed based on the works of Kerdrain et al (2010), especially in choosing of the independent variables that explains gross savings, notably real interest rate, total factor productivity, terms of trade, old-age dependency ratio and youth dependency ratio. The model is developed by using the ordinary least square method to study the relationship between the independent and dependent variables of savings. According to the results, for every increase of one percent of real interest rate the average expected increase of gross savings is 0.406 percent, meaning there is positive correlation between interest rate and saving, but this relationship is not significant at any level of significance. For one unit of increase of terms of trade there is an average expected decrease in gross savings by 4.73e-10 units and this decrease is significant at 1%. A rise in on percent of young age dependency ratio is associated with an increase of 1.372 percent of gross savings, a positive but non-significant impact of young age dependency. On the other hand, old age dependency ratio is significant at 1% level of significance, meaning one percent increase in old age dependency ratio rises savings by 5.737 percent. The independent variable, total factor productivity that focuses on the capital and labor employment to boost productivity has a positive correlation with gross savings and is significant at 5% level. According to the results, a one percent increase in total factor productivity will increase gross saving by 0.430 percent