Central Provident Fund and Savings in Singapore: A Cointegration and Error Correction Analysis

This empirical study examines how compulsory social security savings channelled through the Central Provident Fund (CPF), along with the demographic profile (dependency ratio) impact on aggregate savings in Singapore. Annual time-series data for the period 1970-1994 was used in this study. After testing the relevant variables for unit roots, cointegration between real CPF savings, other forms of aggregate savings in real terms, real GDP and the dependency ratio was found to exist using an unrestricted error-correction model (UECM). Econometric results generated in this study show that CPF savings and real GDP have significant positive effects on the generation of all forms of savings in real terms. The dependency ratio was found to exert a substantial negative impact on savings. These results indicate that it is possible for countries to increase retirement savings and mobilise domestic resources increasingly for development.