The Effects of Financial Innovation on Financial Savings: Evidence From an Economy in Transition

Abstract

The general objective of this research is to establish the effects of financial innovations on financial savings in Ghana for the period 1963 to 2006. Both the perceptual index and M2=M1 that were used as proxies for financial innovation exhibited a positive long-run relationship but a negative short-run relationship. The crux of the study was that financial innovations led to a reduction in financial savings in the short run for one main reason—the prevailing innovative products in Ghana encouraged withdrawals rather than savings. Financial institutions, especially banks, are therefore encouraged to develop savings-related innovative instruments.