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The relation between savings and growth: cointegration and causality evidence from Asia

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  • Pradeep Agrawal
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    Abstract

    The direction of causality between savings and growth remains unclear even though it is of critical importance for development policy. In this paper, Granger causality analysis is undertaken for seven Asian countries using the VECM (Engle and Granger) and VAR procedures. We find that in most cases, the direction of causality runs primarily from growth (or income) to savings, although in some countries, there is also evidence of a feedback effect from savings to income and growth. Thus, development policy should focus less on promoting high savings rates and more on promoting high growth rates. Estimation of the savings functions are presented using Engle and Granger's Static OLS and Stock and Watson's dynamic OLS (DOLS) procedures where appropriate. The high savings rates in Asia are found to be due to the high rate of growth of income per capita, declining shares of dependent population, and some special institutional features, such as the high central provident fund rates in Singapore. Interest rates are found to have little impact on savings.

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    File URL: http://www.tandfonline.com/doi/abs/10.1080/00036840122210
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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal Applied Economics.

    Volume (Year): 33 (2001)
    Issue (Month): 4 ()
    Pages: 499-513

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    Handle: RePEc:taf:applec:v:33:y:2001:i:4:p:499-513

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    Cited by:
    1. Sahoo, Pravakar & Dash, Ranjan Kumar, 2013. "Financial sector development and domestic savings in South Asia," Economic Modelling, Elsevier, vol. 33(C), pages 388-397.
    2. Agrawal, Pradeep & Sahoo, Pravakar & Dash, Ranjan Kumar, 2009. "Savings behaviour in South Asia," Journal of Policy Modeling, Elsevier, vol. 31(2), pages 208-224.
    3. Sinha, Dipendra & Sinha, Tapen, 2007. "Toda and Yamamoto Causality Tests Between Per Capita Saving and Per Capita GDP for India," MPRA Paper 2564, University Library of Munich, Germany.
    4. Alexander Cotte Poveda, 2013. "The relationship between development, investments, insecurity and social conditions in Colombia: a dynamic approach," Quality & Quantity: International Journal of Methodology, Springer, vol. 47(5), pages 2769-2783, August.
    5. Chor Foon Tang & Hooi Hooi Lean, 2009. "The Effects Of Disaggregated Savings On Economic Growth In Malaysia - Generalised Variance Decomposition Analysis," Development Research Unit Working Paper Series 04-09, Monash University, Department of Economics.
    6. Tang, Chor Foon, 2010. "Savings-led growth theories: A time series analysis for Malaysia using the bootstrapping and time-varying causality techniques," MPRA Paper 27299, University Library of Munich, Germany.
    7. Tang, Chor Foon & Lai, Yew Wah, 2011. "The Stability of Export-led Growth Hypothesis: Evidence from Asia's Four Little Dragons," MPRA Paper 27962, University Library of Munich, Germany.
    8. Abdelhafidh, Samir, 2013. "Potential financing sources of investment and economic growth in North African countries: A causality analysis," Journal of Policy Modeling, Elsevier, vol. 35(1), pages 150-169.
    9. Mondher bellalah & Olivier Levyne & Omar Masood, 2013. "Does co-integration and causal relationship exist between the non-stationary variables for Chinese bank’s profitability? Empirical evidence," THEMA Working Papers 2013-14, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    10. Chor Foon Tang & Soo Y. Chua, 2012. "The savings-growth nexus for the Malaysian economy: a view through rolling sub-samples," Applied Economics, Taylor & Francis Journals, vol. 44(32), pages 4173-4185, November.
    11. Piotr Misztal, 2011. "The Relationship Between Savings And Economic Growth In Countries With Different Level Of Economic Development," "e-Finanse", University of Information Technology and Management, Institute of Financial Research and Analysis, vol. 7(2), pages 17-29, August.
    12. Tang, Tuck Cheong, 2003. "Japanese aggregate import demand function: reassessment from the 'bounds' testing approach," Japan and the World Economy, Elsevier, vol. 15(4), pages 419-436, December.
    13. Tang, Chor Foon, 2009. "Does causality technique matter to savings-growth nexus in Malaysia?," MPRA Paper 38535, University Library of Munich, Germany.
    14. Islam, Faridul & Shahbaz, Muhammad & Shabbir, Muhammad, 2011. "Phillips curve in a small open economy: A time series exploration of North Cyprus," MPRA Paper 28397, University Library of Munich, Germany.

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