Innovation in financial markets and its impact on savings

Abstract

Purpose-Financial innovation augment the investment alternatives of individuals, allowing them to have different investment opportunities in changing economic conditions. Channeling the idle savings into productive sectors increase the fund margin of households and entrepreneurs facing financial squezee. The aim of this paper to examine the impact of financial services on savings and domestic savings. The paper analyzes the main determinants of savings in twenty upper middle income, high income countries for the period of 2005-2014. Methodology-In this paper, we build panel data analyses to investigate the impact of innovation in financial markets on savings and domestic savings. Findings-Level of financial innovation and financial access are important parameters affecting both gross savings and gross domestic savings. higher financial innovation leads to higher savings and domestic savings. The net interest margin and banking crisis has a negative effect on savings in both models. Increase in capital formation contribute to higher gross savings and gross domestic savings. Conclusion-The paper finds that financial innovation and diversification is an important lever in the increasing of savings, therefore confirming the "liberalization of financial market" hypothesis.