Effect of Stock Market Development on Financial Savings in Tanzania: An Empirical Investigation (1999-2023)

The performance of the Dar es Salaam Stock Exchange (DSE) since its inception in 1998 followed liberalization of the financial sector in 1991 has been very positive and has also demonstrated that there is huge untapped potential financial capital within the country. For this reason, this study aimed at investigating the impact of stock market development on financial savings in Tanzania from 1999 to 2023 period using quarterly time series data. The study employs econometric analysis in which the error correction model (ECM) is applied to analyze the financial savings function. The overall significant determinants of financial savings included in the model were statistically significant. The results indicated that real GDP in both long run and short run estimation is relevant variable for explaining the variations in the financial savings in Tanzania whereas stock market in terms market capitalization is relevant variable both in the short-run and long run estimation. There is significant evidence that stock market development in Tanzania has negative effect and that it reduces financial savings function in both short run and long-run via market capitalization. The negative effect of stock market development on financial savings might poses problems to the conduct of monetary policy in Tanzania, by failing to correctly target monetary growth in the economy.