This paper tests the
life cycle hypothesis that private saving rises with a higher percentage of
population working and falls by higher percentages among the young and the
retired, using the case of selected Pacific Island countries. Our results
provide strong empirical evidence that age structure is a prime determinant of
national savings. The results reveal a statistically significant and positive
relationship between national savings ratio and the percentage of working
population groups. The research also revealed a statistically significant and
negative relationship between national savings and percentage of retired population.
Policy makers need to set up measures that improve the economic welfare of the
working age population, such as instituting and enforcing minimum wage laws,
encouraging compulsory savings for private and public sector workers, adjusting
wages to inflation on a consistent and regular basis, providing tax rebates to
low-income earners and those providing care for the elderly family members and
improving the private sector business environment so as to facilitate the
absorption of more working age population.