Demographic structure and private savings in selected countries of the Oceania region

This paper tests the life cycle hypothesis that private saving rises with a higher percentage of population working and falls by higher percentages among the young and the retired, using the case of selected Pacific Island countries. Our results provide strong empirical evidence that age structure is a prime determinant of national savings. The results reveal a statistically significant and positive relationship between national savings ratio and the percentage of working population groups. The research also revealed a statistically significant and negative relationship between national savings and percentage of retired population. Policy makers need to set up measures that improve the economic welfare of the working age population, such as instituting and enforcing minimum wage laws, encouraging compulsory savings for private and public sector workers, adjusting wages to inflation on a consistent and regular basis, providing tax rebates to low-income earners and those providing care for the elderly family members and improving the private sector business environment so as to facilitate the absorption of more working age population.