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CHAPTER ONE INTRODUCTION 1 1 Background According to Solow 1956 national saving in macroeconomic theory is defined as the combination of public and private saving rates of a nation It plays very important role in economic growth and development Low national saving is one of the most series obstacles to achieving higher and more sustainable economic growth Positive change in saving rate promotes the growth rate For that reason saving is one of the factors for economic growth accumulated saving is the source for capital stock which leads to increase investment output and more employment cited in Taye 2017 Even though robust and broad based economic growth places Ethiopia among the top performing African and other developing Asian countries the economy is characterized by a low domestic saving rate vulnerability to shocks negative trade balance and others For instance in 2014 15 the gross capital formation Investment was about 40 3 of GDP while the gross domestic saving was only 22 5 for the same fiscal result in 17 8 saving gap NBE 2014 15 and UNDP 2014 Inadequate capital formation to undertake the real investment has adversely affected the output level of the economy through credit Capital formation whether financed from internal domestic saving or from external sources requires the mobilization of economic surpluses Gross investment was 34 6 percent of GDP and domestic saving was 16 5 percent of GDP in FY2011 12 In 2013 14 2014 15 and 2015 2016 the resource gap difference between GDS to GDI were 17 5 17 5 and 21 9 respectively
