An examination of the causal relationship between savings and growth in the third World

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Abstract

Past studies reveal a correlation between savings and GDP growth in the Third World. Those studies hypothesize that higher rates of savings cause higher growth rates of real GDP. This paper explores an alternative hypothesis: that higher growth rates of GDP cause increased savings. Higher growth rates of income boost the rate of savings and attract more foreign savings. The difference between these two hypotheses is the direction of causality. This study investigates the direction of causality using the Engle-Granger error-correction model or the Granger causality test, whichever is appropriate. The findings support the latter hypothesis in more cases.

Original languageEnglish (US)
Pages (from-to)90-98
Number of pages9
JournalJournal of Economics and Finance
Volume23
Issue number1
DOIs
Publication statusPublished - Jan 1 1999

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All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

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