Analysis of the Savings Trends in Palestine

Palestine economy had suffered from a series of oppressions and wars, which affected the Palestinians’ decision to invest or save. It is important to understand the impact of these uncertainties on financial savings in Palestine. Therefore, financial savings trends in Palestine need to be investigated. The goal of this study is to analyze the macroeconomic and institutional factors that may have an effect on financial savings in Palestine for the period 2001-2013. Hence, the financial savings trend in Palestine is analyzed in two major parts under two different sets of variables. The first part includes the macroeconomic variables which mainly are GDP growth, public debt, unemployment rate, inflation rate and foreign aid. The second part includes bank specific factors which are deposits interest rates, number of banks and branches, banks services and savings products. Due to constraints on data availability this research mainly uses trend analysis to identify the possible relationships between variables. As expected, the findings indicate that the wars, public debt and unemployment rate have a negative impact on savings behavior in Palestine, whereas GDP growth and international aid have positive affect on financial savings. In terms of bank specific factors it is found that interest rates do not play any role in attracting savings as they are artificially kept below the inflation rate. Furthermore, it is observed that depositors prefer to keep majority of their savings in the checking accounts that do not bear any interest. This indicates that savers value instant access to their savings more than interest earnings given the uncertainties caused by war. Keywords: Palestine, trend analysis, financial savings, macroeconomic factors, banks specific factors.