International Review of Business Research Papers

Vol. 10. No. 2. September 2014 Issue. Pp. 178 191

Saving Behavior of Bangladesh

Humyra Jabeen Bristy*
It is often argued that savings behavior of a country is suffered from
aggregation bias. This paper shows that results obtained from previous studies
can be improved by decomposing the aggregate saving trend in urban and
rural sector. It considers time series data to shed light on the saving behavior
of Bangladesh in long run horizon and short run dynamic adjustment by
employing cointegration test and vector error correction model. Findings of the
study suggest that, there is a great deal of diversity between urban and rural
sector. Deposit rate is not the only factor that stimulates depositors to save,
although it has received noticeable attention. Rather, high volatility regarding
income, banking facilities and inflation influence savers to increase interestbearing deposit. This study recommends that diversity between urban and
rural sector should be taken into consideration before forming policies. In
addition, to motivate poor people to deposit their savings in the financial
institution this research proposes adequacy of institutional structure and
flexible savings instruments.

JEL codes: E44, G2, R0

1. Introduction
Saving mobilization is one of the key determinants for prolonged economic growth.
Nations with high level of savings enjoy increased level of national resources and
decreased rate of foreign indebtedness (Elser et al., 1999). On the other hand, low level
of investment attributes to the low level of savings. Along with savings, foreign capital
can also play a vital role in increasing investment level but this capital often create undue
dependency. Therefore, level of savings is required to be increased and to augment this
key determinant appropriate and separate analysis of urban and rural sector and
evaluation of the determinants of savings are needed for which saving behavior analysis
is indispensable.
Bangladesh, a developing country, aspires to be a middle income country by increasing
GDP growth rate to 7.5%-8% per year. Can the level of savings play any role in attaining
this target growth rate? Analysis of economic data reveals that over the past years
economy of Bangladesh has grown at nearly 6% per year coupled with increased life
expectancy and literacy rate. In 2012, its GDP grew by 6.3% which is close to Asian
Development Outlook projection of 6.2%. Broad money increased 7.94% in 2011 and its
component deposit alone increased by 8.2%. Out of this 8.2%, time and demand deposit
increased by 8.93% and 3.12% respectively. Therefore, substantial amount of deposit
mobilization can create a wedge between target growth rate attainment and sustainable
economic development of Bangladesh.
In Bangladesh, urban and rural sectors have flourished over the year. Nevertheless,
efforts conducted for savings mobilization have been confined to urban sector. According
to Keynesian function, marginal propensity to save for urban sector is much higher than
*Humyra Jabeen Bristy, Lecturer, Stamford University Bangladesh, 51 Siddeswari Road, Bangladesh.
Email : humyra.jabeen@gmail.com

Bristy
that of rural sector. But this view was proved wrong by some other literatures showing
that marginal propensity to save is higher in rural sector compare to urban sector.
Empirical literature related to deposit mobilization is largely related to aggregate saving
behavior. But, saving behavior of urban and rural sector is different because of social,
economic and cultural condition. As a result, if the trends of the behavior are conducted
together, it will suffer from aggregation bias and may either underestimate or
overestimate true saving behavior.
Therefore, the objective of this paper is to analyze aggregate, urban and rural saving
behavior of Bangladesh. It also examines the role of the factors in determining demand of
deposit of Bangladesh. Section 2 contains previous studies conducted on this sector
followed by scenario of saving behavior of Bangladesh in section 3. Section 4 provides
brief explanation of the method used in this study. Finally, analysis of the results and
conclusions are provided in section 5 and 6 respectively.

2. Literature Review
To measure the determinants of private savings Bhandari et. al (2007) applied granger
casualty test using annual time series data of South Asian nation. They found that
Government spending and past savings have a negative impact on savings while the
financial liberalization and income have a positive effect. The paper did not find any
noticeable impact of degree of urbanization, real interest rate and dependency ratio on
private saving of South Asia.
Athukorala et. al (2004) examined the determinants of aggregate saving in India. The
study found that saving rate rises with the level and rate of growth of disposal income.
Moreover, real interest rate, inflation and banking facilities have positive impact on bank
deposits of India. In addition, with special emphasis on rural branches, Khalily et al.
(1987) examined the pattern and trend of rural deposit of Bangladesh. To estimate this,
the study used simultaneous equations model. They found that, permanent income and
inflation indirectly influence deposit through their effect on bank branches whereas
availability of roads and vehicles directly influence deposit through their effect on
transaction cost. Though the paper made a broad analysis of rural saving trend of
Bangladesh but it focused exclusively on rural sector.
Study conducted by Ozcan et al. (2010) investigated the impact of policy and non-policy
variable on private savings. They showed that Government savings does not crowd out
private savings. Income level and inflation have positive impact on savings. Moreover,
analysis of financial depth and financial development in Turkey suggested that countries
with deeper financial system have higher saving rate.
Hebbel et.al (1992) used household data instead of relying on domestic or private sector
data for a sample of 10 countries. To test the determinants of household savings, the
paper estimated saving functions using both time-series and cross-country observations.
Outcome of the results showed that income and wealth are strong determinants of
savings. However, the clear effect of inflation on savings was absent. Moreover, foreign
savings and monetary assets have a strong negative effect on household saving.
A key contribution of Loayza (2000) was to investigate why there is considerable
variation of savings performance across countries and overtime. They investigated the
policy and non-policy factors behind the saving disparities using OLS estimates. With the
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level and growth rate of income, private saving rate rise and the influence of income is
larger in developing countries than in developed countries. By acting as a precautionary
motive for future, inflation helps to improve savings. In addition, they also showed that
fiscal policy is an effective tool to raise national savings whereas financial liberalization is
largely detrimental to private savings.
Fasoranti (2007) measured the saving mobilization of rural sector applying multistage
sampling technique. Outcome of the analysis shows that rural savings is positively
related to investment, asset acquisition, human development and personal income. He
concluded that efficient mobilization of rural savings plays vital role in economic
development of the country.
The interaction between economic-demographic factors and savings was analyzed by
Doshi (2007). The study provides an added dimension by examining the role of life
expectancy as a determinant of savings. It concluded that savings performance is a
statistically significant factor for less developed countries. Moreover, age structure exerts
a depressing effect on savings. Income has small effect in high income countries
whereas it plays strong and vital role in less developed countries and hence, they
suggested that policymakers must take into account the regional diversity before
formulating policy.
Determinants of saving behavior were analyzed by Masson et al (1994) using data of a
large sample of developed and industrial countries. Results showed that demographic
and growth rate are important determinants of savings but interest rate and terms of
trade have a positive but less robust effect on deposit. Moreover, at low income level,
with the increase in per capita gross domestic product savings level increases but it
decreases at high income level.
The effect of income, inflation and interest rate on savings is the issues which have not
been resolved conclusively over the year. According to Patrick (1966), inflation increases
demand for investment and savings, but often it comes from redistribution of wealth from
spenders to savers. Cuevas (1984) said inflation often hinders financial intermediation. In
response to inflation, regulatory authorities take some initiatives such as raising the
reserve requirement, rediscounting facilities; establishing loan ceilings which hinder
efficient savings mobilization. It penalizes & discourages savers by making the deposit
rate low and unstable. But Patrick (1966) believed that, though deflation dampens growth
rate but the relationship depends on the behavior of individual, institutional and structural
rigidities.
It is often argued whether income level also acts as a determinant of sound saving
behavior. Increase of income swells the level of savings by making individual left with
abundant resources in current period compare to previous period. But empirical evidence
of this factor is mixed. Study of Ortmeyer (1985) revealed that, increases in disposal
income, shifts choice toward interest bearing financial asset from physical capital and
non-interest bearing cash balances. Faruqee & Husain (1998) found no significance
influence, rather concluded that growth rate differences in different countries may
account for cross-country differences in savings. But some other studies found that
income level is the most important determinants of national savings.
According to literature, deposit rate is the most influential determinants of deposit. A
decline in deposit rate decreases money demand and credit availability and squeezes
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fixed investment and working capital investment. According to Classical-Neo classical
monetary theories of growth, high interest rate has an impact on savings and investment
and the relationship is positive and direct. Keynesian theory pointed out that lower rate
boosts investment and income, which ultimately amplifies higher savings. Friend et
al.(1966) said that, interest rate saving relationship is ambiguous. If savings of a
household is motivated by investment plans, higher interest rates might discourage
investment and savings. Some LDCs have observed negative real interest rate and high
growth but there might have influenced of other exogenous factors. Savings and
investment both are highly interdependent and high interest rate is associated with lower
real saving (Williamson, 1968).
From the discussion we see that, above studies had focused exclusively on aggregate
behavior. Aggregate savings consist of urban and rural sector but separate analysis of
urban and rural savings is absent. Moreover, there is relatively low research conducted
on this sector in Bangladesh. In addition, no study has analyzed saving behavior of
Bangladesh considering time series data. So, there exists ample opportunity for further
development.

3. Saving Behavior of Bangladesh

If we compare the saving performance of Bangladesh with other developing countries,
we can see that this sector is a contributing factor for economic development. Following
figure depicts contribution of savings to GDP compare to other countries:
Figure 1: Gross Domestic Savings to GDP

Source: Economic Trends, Bangladesh Bank

From figure 1 we can see that in 1980, contribution of gross domestic savings of
Bangladesh to GDP was 2.05% only. For India, Indonesia, Japan, Malaysia, Sri Lanka
and Thailand it was 14.99%, 38.04%, 31.15%, 29.18%, 11.19% and 21.05% respectively.
Finally in 2011, the contribution of domestic savings to GDP was 30.31% for India, 39.5%
for Indonesia, 21.99% for Japan, 40% for Malaysia, 24.46% for Sri Lanka and 33% for
Thailand whereas for Bangladesh, it was 16.23%. Therefore, in Bangladesh the ratio
increased from 2.05% to 16.23% from 1980 to 2011.

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Figure 2: Total Deposit, Time Deposit and Demand Deposit

Source: Economic Trends, Bangladesh Bank

Saving behavior had also changed over the years and household had changed their
attitude from relying on informal market to keep faith on formal market. Because of the
flexibility of withdrawing money without prior notice, demand deposit has increased a
greater amount compared to time deposit.
Figure 3: Aggregate, Urban and Rural Deposit

Source: Bangladesh Bank Bulletin, Bangladesh Bank.

Figure 3 demonstrates that total deposit of Bangladesh has increased over the years.
From the graph, we can see that urban sector dominated rural sector over the entire life.
In the earlier period, the gap between the two sectors was low. But in later period, the
gap has widened.

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Year
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995

Table 1: Number of Bank Branches

Urban Rural
Year
Urban Rural
Branch Branch
Branch Branch
1517
2700
1996
2 284
3612
1534
2902
1997
2 312
3622
1543
2985
1998
2 308
3614
1574
3183
1999
2412
3626
1623
3301
2000
2460
3659
1650
3392
2001
2502
3680
1705
3453
2002
2538
3693
1751
3535
2003
2526
3694
1810
3603
2004
2579
3724
1861
3660
2005
2638
3764
1900
3685
2006
2728
3834
1925
3717
2007
2752
3844
1981
3736
2008
2842
3905
2008
3732
2009
2954
4027
2130
3662
2010
3265
4393
2182
3631
2011
3410
4551

Source: Scheduled Bank Statistics

Table 1 illustrates number of bank branches of Bangladesh over the years. In 1980, there
were only 4217 branches and in 2011, it increased to 7961. Urban sector had less
branches compare to rural sector. In 2011, number of rural branches reached to 4551
whereas for urban sector it was 3410 only.

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Table 2: Deposit Distributed by Category of Bank
Year
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011

State Owned
Bank
2907
3379
3873
5215
7171
5913
8509
9959
10,125
11,597
13,634
16,053
18,185
19,454
22,767
25,454
27,756
28,903
31,657
37,579
42,586
46,764
50,912
52,792
51,831
62,774
66,311
66,102
77,534
85,831
102,657
121,427

Specialized
Bank
141
188
249
367
472
1 329
551
599
694
859
954
1143
1370
1888
2148
2011
2133
2475
2847
3817
4615
5396
5929
6310
6783
9241
10,240
11,309
13,719
16,075
18,821
21,300

Foreign
Bank
202
286
323
464
566
537
811
1010
1212
1560
1369
1320
1291
1243
1716
2124
2737
3039
3891
4825
5652
6131
6545
7895
8122
10,909
12,773
16,247
19,985
21,915
23,100
27,860

Private
Bank

Islamic
Bank

15
227
702
1371
2466
3166
3584
5691
4266
6548
7735
8588
10,185
11,423
12,972
12,616
14,218
18,874
24,267
30,358
37,148
46,440
47,546
71,983
93,602
107,689
141,518
180,457
224,343
274,607

2181
2749
3676
4687
5947
7998
10,756
10,970
18,992
23,442
27,745
35,251
47,361
59,443
74,029

Source: Scheduled Bank Statistics

From table 2 we see that, over the year deposit distributed by different types of bank had
been revolutionized. At the beginning, specialized bank mobilized very low level of
savings but in later years, the amount had improved.
In order to mobilize the savings, Government of the country took number of initiatives.
Government also increased the banking facilities to motivate the depositors. To reduce
the transaction cost, Bangladesh Bank took two-for one branching policy which requires
banks to open two rural branch for opening 1 branch in urban area. The effect of this
policy can be observed during the period of 1980-1984. With the expansion of branch,
deposit of Bangladesh has increased significantly over the years. It demonstrates that
deposit can be mobilized through financial market even when level of income is low
(Khalily et al. 1987). Although deposit has increased significantly and performance of
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rural sector is also good but a great potential still appears to exist for further improvement
in rural deposit mobilization.

3. Data, Methods and Model

3.1 Data and Sources of Data
Data used in this study include some macroeconomic variables and other potential
variables that may shape saving behavior. Annual data series for the period of 19802012 is considered because of the availability of data over the study period. Data is
compiled from Bangladesh Bank Bulletin, Scheduled Bank Statistics, Annual report and
Monthly Economic Trend published by Bangladesh Bank and Statistical Yearbook of
Bangladesh.
3.2 Research Methods
There is no recent study conducted on this topic considering both urban and rural saving
behavior. Khalily et al. (1987) applied simultaneous regression model to emphasis on
bank branch. Other studies (Loayza, 2000, Masson et al., 2007, Hebbel et al. 1992) used
cross sectional data to check the saving behavior across countries. As our study is based
on time series data, stationary test is needed to perform in order to avoid spurious
regressions. To check for non stationary property, unit root test has been employed in
this study. Cointegration test has been applied to determine whether the variables have
long run relationship. Finally, vector error correction model is employed to measure the
short run dynamic of the long run relationship.
3.2.1 Unit Root Test
To test short run dynamics and long run relationship among the time series variables,
unit autoregressive test is employed. Because in the non stationary data features of
Durbin Watson (DW), T-statistics and R 2 may not remain valid. If regression is run on that
data, it may produce wrong results so, stationary test needs to be performed. In this
study, Augmented Dickey Fuller (ADF) is employed to run the test.
3.2.2 Johansen Cointegration Method
This method uses maximum likelihood test to determine the presence of cointegrating
vectors. The first likelihood ratio statistics is the maximum eigenvalue statistics and the
second one is the trace statistics. Null hypothesis of first one is that there should be
exactly r cointegrating vectors against alternative (r+1) vectors and for latter there should
be at most r cointegrating vectors against the alternative.
3.2.2 Vector Error Correction Model (VECM)
A VEC model is designed to use it with non-stationary cointegrated series. It allows short
run dynamics but limits long run behavior of endogenous variables to converge to their
cointegrating relationship. The deviation from the long run equilibrium is corrected
gradually by short run adjustment.

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3.3 Model Specification
Conditional process formulation for savings mobilization includes some conditional
variables such as real GDP per capita. The justification for using this variable is that high
income level makes people left with abundant resources which encourage people to
save. As a proxy of income, this paper has considered GDP per capita at constant
market price for aggregate savings behavior model. For rural savings behavior model,
agriculture sectors contribution to GDP is used. Other sectors contribution to GDP except
agriculture is considered in urban savings behavior model.
Another influential factor is the rate of deposit. Deposit rate is considered an opportunity
cost of holding cash in liquid form. It also acts as a motivation tactics for encouraging
savings. Inflation also makes people simultaneously satisfied and dissatisfied. It
encourages people to save which results in higher investment. But from another
perspective, it penalizes savers making the rate low. In this study, using base year of
1995-96, CPI data is collected for national, urban and rural sector.
Additional variable also need to be considered for investigating the influence of non
interest rate factors on saving deposit. We considered the number of bank branches
because transaction cost hinders savings by making savers to rely on non-productive
instruments. Therefore, if widespread banks are present, fund would be mobilized freely.
As a proxy of transaction cost, number of bank branches are used for national, urban and
rural sector.
All of the variables are transformed into natural logarithm. Moreover, except inflation and
deposit rate all of the variables are converted into per capita.
Model 1: (Aggregate Behavior)
ln( S _ Dt / P ) 1 11 ln(GDPt / P ) 12 DP _ Ratet 13 Inf t
15 ( Brt / P ) e1t

(1)

Model 2: (Urban Behavior)

ln(U _ DPt / P ) 2 21 (ln GDPt / P ) 22 ln DP _ Ratet
23 Inf _ U 24 ln( Br _ U t / P ) e 2 t

(2)

Model 3: (Rural Behavior)

ln( R _ DP / P ) t 3 31 ln(GDP / P ) t 32 ln DP _ Ratet 33 Inf _ R
34 ln( Br _ R t / P ) e 3t

(3)

Here, S_D, U_DP and R_DP denote aggregate, urban and rural saving deposit per
capita respectively. In addition, DP_Rate is weighted interest rate of deposit and Inf is
inflation.

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4. Empirical Results
4.1 Summary Statistics

(1980-1989)
Mean
Std. Dev
Growth Rate
(1990-1999)
Mean
Std. Dev
Growth Rate
(2000-2011)
Mean
Std. Dev
Growth Rate

Table 3: Summary Statistics (Model 1)

Saving_Deposit GDP
Deposit
Branch
Rate
211
10117 8.0%
484
104
412
0.87%
8
342%
9%
39%
5%

Inflation
11.2%
2.1%
-41%

871
327
216%

12463 7.02%
1045 1.46%
28%
-21%

459
17
-10%

6.11%
2.79%
-15%

3084
1243
235%

19303 6.60%
3031 0.61%
57%
6%

437
27
10%

6.05%
2.37%
156%

As shown in table 3, during the period of 1980-1989, average saving deposit for
aggregate was 211 which became 3084 on the study period of 2000-2011 with a very
high standard deviation indicating a volatile formal market for savings deposit. Though
the trend is increasing but it is increasing at a decreasing rate. The reason of this
decreased saving may attribute to increased variability of income and inflation.
Table 4 represents how the variables are correlated and the strength of the relationship.
We see that strong positive relationship exists between savings deposit and deposit rate
but in case of inflation the direction is negative.

Saving Deposit
GDP
Deposit Rate
Branch

Table 4: Correlation Matrix

Saving Deposit GDP
Deposit Rate
1
0.736 0.957
0.736
1
0.617
0.957
0.617 1
0.465
0.398 0.217

Branch
0.465
0.398
0.217
1

Inflation
-0.583
-.0745
-0.310
-0.209

Inflation

-0.583

-0.209

-0.745

-0.310

4.2 Test of Stationary

ADF test suggests that all the variables are non-stationary. Cointegration of selected
variables showed that all of them are cointegrated at same order except number of bank
branches which is in order 2. Hence, data series is changed to make it in order 1.

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4.3 Long Term Relationship using Cointegration
Table 5: Johansen Cointegration Test

Model-3

Model-2

Model-1

Model
Saving Deposit
GDP
Deposit Rate
Inflation
Branch

Eigenvalue

Trace
Statistic

5%
Value

1%
Value

0.69**
0.49**
0.42*
0.25*
0.12*
0.63**
0.42*
0.32*

84.88
49.66
29.27
12.84
3.89
73.62
43.40
26.76

59.46
39.89
24.31
12.53
3.84
59.46
39.89
24.31

66.52
45.58
29.75
16.31
6.51
66.52
45.58
29.75

0.27*
0.17*
0.79**
0.54**
0.52**
0.37**
0.11

15.12
5.59
106.95
61.37
38.42
17.02
3.44

12.53
3.84
59.46
39.89
24.31
12.53
3.84

16.31
6.51
66.52
45.58
29.75
16.31
6.51

Note: *(**) denotes rejection of hypothesis at 5% (1% significance) level.

Table 5 shows test statistics for cointegration and the results indicate that there exist
relationship between the variables in model 1, 2 and 3 at both 5% and 1% significance
level. Therefore, all the variables are cointegrated. The relationship among the variables
is given in table 6:

Model-3

Model-2

Model-1

Table 6: Normalized Co integrating Coefficient

Log likelihood 364.46
S_D
GDP
Co-efficient -1.81
T-statistics 2.54
Log likelihood 355.84
U_DP
GDP_U
Co-efficient -19.84
SE
-4.05
T-statistics 4.89
Log likelihood 326.82
R_DP
GDP_R
Co-efficient -29.15
SE
-13.35
T-statistics 2.18

DP_RATE
-213.54
2.45

INF
244.47
-6.33

D(BR)
-321.27
6.49

DP_RATE
-45.23
-21.25
2.13

INF_U
137.14
-54.32
-5.64

BR_U
-26.47
-5.52
4.79

DP_RATE
-64.91
-31.18
2.08

INF_R
-125.82
-52.86
2.38

BR_R
-29.55
-14.62
2.02

Table 6 shows that, the sign of the coefficients confirms to prior expectations for model 1.
It can be concluded that aggregate behavior of savings is positively influenced by
income, deposit rate and number of bank branches and negatively influenced by inflation
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and in all cases the results are statistically significant. This result is consistent with the
result found by Khalily et al. (1987).
Positive sign of income shows that, tendency toward savings increases when there is an
unexpected change in variability of income. This result supports the viewpoint of khalily et
al. (1987) that household uses financial assets to even out the unpredictability of income.
This sign confirms the result of Bhamdari (2007), Ozcanelal (2010), Hebbel et al. (1992),
Athukorala et al (2004) and Ortmeyer (1985). However, it contradicts the result of
Faruquee & Husain (1998) and Loyaza (2000). Results of interest rate corroborate the
viewpoint of Classical and New-classical monetary theories of growth but oppose the
viewpoint of Williamson (1968) and Friend et al. (1966).
Positive and significant coefficient for bank branches validates the argument of Khalily et
al (1987). It demonstrates the importance of transaction cost in affecting savings deposit.
Therefore, as banks, road and vehicles expand, the net return earned by depositors
amplifies.
We found our expected sign of inflation rate in case of aggregate and urban model which
shows that inflation decreases savings as it declines real value of deposit and this result
coincides with Cuevas (1984) and Khallily et al. (1987). But, for rural savings behavior
model we found positive sign which supports the idea of Patrick (1966), Ozcanelal,
(2010) and Athukorala et al (2004). As fewer alternatives are available in rural sector, so
higher inflation induces rural savers to save more, perhaps rural households get stable
price prediction from deposit.
4.4 Short Run Adjustment using VECM
If the variables of the model 1, 2 and 3 are cointegrated then there exists an error
correction model in the following form:
p

ln Saving _ Deposit1t 10
i 1

ln Saving _ Depositt i
k 1

11 j

ln GDPt k
12 i

l 1

m 1

13i ln Deposit _ Ratet l 14i ln Brancht m 15i ln Inflationt j

j 1

n 1

n 1

15i ln Financial _ Deptht n 16i ln Work _ Age _ Populationt n p1 1,t 1 eit

Where refers to first difference operator, 1 , t 1 is the correction term, e1t is the
random disturbance terms. The error correction term 1 , t 1 is the residual series of the
con integrating vectors normalized for the ln Saving_Deposit t , ln GDP t ,ln Deposit
rate t ,ln Branch t , Inflation t and they measure the deviations of the series from the long
run equilibrium relations. Similarly for model 2 and 3, error correction model can be
formed.
Table 7: Result of Vector Correction Estimate
Model-1 Model-2
Model-3
Error Correction:
D(S_D)
D(U_DP)
D(R_DP)
CointEq1
-0.07[-5.23] -0.11[-0.34] -0.04[-0.98]
Values in parenthesis denote t-values.

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According to table 7, the error correction models have a correct negative sign. Therefore,
it can be concluded that level of savings is adjusting to previous periods level of
equilibrium at rates of 7%, 11% and 4% respectively. To reach equilibrium from
disequilibrium state, it will require 14 years (1/0.07), 9 years (1/0.11) and 25 years
(1/0.04) for aggregate, urban and rural sector respectively. However, the result is
significant only for aggregate behavior model.

5. Conclusion
Empirical literature relating to determinants of deposit mobilization is largely based on
aggregate behavior and very little work conducted considering time series data. This
paper shows the results obtained from previous studies can be improved in at least two
ways: First, by decomposing the aggregated data in urban and rural sector and
measuring saving behavior in both aggregated and segmented basis and second, by
considering time series data to shed light on the trend of saving behavior.
This study suggests that as the contribution of deposit to GDP of Bangladesh is
substantial, adequate policies require to be planned for efficient deposit mobilization
targeting GDP growth rate. In addition, rural sector has more potential to save but this
sector has not thrived much. Therefore, diversity between urban and rural sector should
be taken into consideration before forming policies. As rural people are illiterate,
improved services such as reduced paper work, simplification of procedures are needed
in rural sector. Since, skilled employees are not motivated to provide services in rural
branches incentives such as cash bonus, annual bonus may create a competitive
environment and encourage the employees to provide more effort. For rural sector
development, innovative financial instruments and substantial awareness creation are
necessary. Moreover, extensive marketing effort of banks and considerable enticements
should be provided to bank employees to attract deposit.
From the theories of Mckinnon and Shaw, it seems that interest rate is the most vital
factor for efficient deposit mobilization but additional incentives can be provided like prize
bond, cash benefit, performance based promotion etc. Moreover, unpredictability
regarding income and inflation raise savers desire toward interest-bearing deposit.
Therefore, policies may affect financial deepening by altering savings behavior,
particularly by altering banks willingness to attract deposit and by stimulating interest of
depositors to save.
This research is an important contribution to the literature due to the findings of the study
which will help policy makers to formulate policy. However, this study is not beyond
limitations. Over the years, number of other mechanisms had been used in promoting
financial deepening but they are excluded in this study because of the lack of data to
measure those issues such as quality of bank services, inducements provided to
employees and depositors etc. For further investigation, this study suggests exploration
of the effects of these qualitative variables on financial deepening.

190

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