The effects of corruption and political instability on saving: The case economic community of West African States

Despite the abundant research on savings and its determinants, little has been done to examine the effects of corruption and political instability on savings, particularly in the Economic Community of West African States (ECOWAS), one of the most corrupt and politically unstable regions in the world. The objectives of this study include investigating the effects of corruption and political instability on savings, in addition to examining whether the effects of corruption and political instability on savings depend on income levels in the ECOWAS from 1996 to 2012. Using the Panel Corrected Standard Error (PCSE) and the Two Stage Least Squares (TSLS) instrumental variables techniques that take into account random effects, the results indicate that lesser corruption and higher political stability have a significant and positive effect on savings, and the effects of corruption and political instability on savings depend on income levels. These suggest that at high income levels, the negative impact of corruption and political instability on savings is lower, but at low income levels, the negative impact of corruption and political instability on savings is higher in the ECOWAS. In addition, income level, income growth, real interest rate and inflation rate have positive and significant effects on savings. However, the percentage share of agriculture in Gross Domestic Product (GDP) has a negative effect on savings. The study recommends policies to reduce corruption and political instability to raise savings. In addition, raising incomes would reduce the adverse effects of corruption and political instability on savings and also raise savings in the ECOWAS