The Effect of Income Risk and Unemployment Risk on Gross Domestic Saving by Using Panel Data Method in D8 Countries

In this paper, the effects of risk -as one of the most important and effective variable on saving- has been studied in eight developing Islamic countries called D8, (including Iran, Malaysia, Bangladesh, Egypt, Indonesia, Nigeria, Pakistan and Turkey) using panel data model for the period 1991 to 2014. Thus, income risk and unemployment risk, as two indices representing for risk, are used. A Generalized Auto Regressive Conditional Heteroskedaticity (GARCH) model was used to estimate the values for indices. Empirical findings of this research, using fixed-effects model, indicate a positive and significant effect of income risk and unemployment risk on the gross domestic savings. In another word, the increased uncertainty causes disutility for risk averter consumers and then they reallocate consumption from the present toward the future consumption in order to decrease the disutility. Therefore, saving Increases and it confirms the effect of precautionary motives on saving. Moreover, the real interest rate and inflation rate have negative effects and the net exports and the ratio of working population to total population have positive effects on saving.