The effect of financial liberalization on private saving is theoretic ally ambiguous, not only because the link between interest rate and saving is itself ambiguous, but also because of financial liberalization is a multi-dimensioned and reversible process. Some dimensions, such as interest household access to consumer credit or housing finance, can also reduce private savings rather than increasing them.
The goal of this paper is to provide an empirical examination of the total effect of the financial reform on aggregate private saving based on Algerian case. Using Principal Components Analysis, we construct an index of financial liberalization for Algeria. This is employed for an econometric analysis of private saving in this country during the period 1970-2006. We find that liberalization appears to have had a significant negative effect on saving. Furthermore, there is no evidence of any significant effects of the interest rate.