Causal Relationship between Domestic Savings and Economic Growth: Evidence from Seven African Countries

This paper utilizes cointegration and the vector error-correction model (VECM) to explore the causal relationship between economic growth and the growth rate of domestic savings for Congo, Cte d’Ivoire, Ghana, Kenya, South Africa and Zambia. Three analyses were undertaken. First, the time series properties of economic growth and domestic savings were ascertained with the help of the augmented Dickey-Fuller unit root procedure. Second, the long-run relationship between economic growth and the growth rate of domestic savings was examined in the context of the Johansen and Juselius (1990) framework. Finally, a Granger-causality test was undertaken to determine the direction of causality between economic growth and the growth rate of domestic savings. The results indicate one order of integration for each of the series. The results of the cointegration tests suggest that there is a long-run relationship between economic growth and the growth rate of savings. The results from the Granger-causality tests indicate that, contrary to conventional wisdom, economic growth prima facie determines the growth rate of domestic savings for most of the countries under consideration. The study uses annual data from the World Bank, World Tables 1998, covering the period 1960-1997. Bibliogr., notes, ref., sum. in English and French.

Title: Causal Relationship between Domestic Savings and Economic Growth: Evidence from Seven African Countries
Authors: Anoruo, Emmanuel
Ahmad, Yusef
Year: 2001
Periodical: African Development Review
Volume: 13
Issue: 2
Period: December
Pages: 238-249
Language: English
Geographic term: Subsaharan Africa
External link: https://onlinelibrary.wiley.com/doi/10.1111/1467-8268.00038/pdf
Abstract: This paper utilizes cointegration and the vector error-correction model (VECM) to explore the causal relationship between economic growth and the growth rate of domestic savings for Congo, Cte d’Ivoire, Ghana, Kenya, South Africa and Zambia. Three analyses were undertaken. First, the time series properties of economic growth and domestic savings were ascertained with the help of the augmented Dickey-Fuller unit root procedure. Second, the long-run relationship between economic growth and the growth rate of domestic savings was examined in the context of the Johansen and Juselius (1990) framework. Finally, a Granger-causality test was undertaken to determine the direction of causality between economic growth and the growth rate of domestic savings. The results indicate one order of integration for each of the series. The results of the cointegration tests suggest that there is a long-run relationship between economic growth and the growth rate of savings. The results from the Granger-causality tests indicate that, contrary to conventional wisdom, economic growth prima facie determines the growth rate of domestic savings for most of the countries under consideration. The study uses annual data from the World Bank, World Tables 1998, covering the period 1960-1997. Bibliogr., notes, ref., sum. in English and French.