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Testing Causality and Cointegration of Savings and Investment In Ghana

Author

Listed:
  • Henry Otoo

    (Mathematical Sciences Department, University of Mines and Technology, Tarkwa, Ghana)

  • Sampson Takyi Appiah

    (Department of Mathematics and Statistics, University of Energy and Natural Resources, Sunyani, Ghana)

  • Albert Buabeng

    (Mathematical Sciences Department, University of Mines and Technology, Tarkwa, Ghana)

  • M. Apodei

    (Mathematical Sciences Department, University of Mines and Technology, Tarkwa, Ghana)

Abstract

This paper sought to identify the causal relationship between saving and investment in Ghana as these econometric indicators serve as a measure for the economic development and wellbeing of developing countries. Annual time series of Saving and Investment in Ghana spanning from 1980 to 2017 were considered. First, the Augmented Dickey-Fuller (ADF) and the Elliott-Rothenberg-Stock (ERS) tests are carried out to determine the integration order of saving and investment data series. The Johansen's trace and maximum eigenvalue tests for cointegration were performed to ascertain the level of cointegration which suggested a long-run relationship between the saving and investment in Ghana despite potential deviations in the short-run. Finally, the Granger Causality test suggested saving as having a causal relationship with investment, while the reverse indicated no relationship. The study, therefore, recommended intensifying saving, both at the national and household level as a crucial direction for consideration if Ghana intends to finance her investments rather than relying mostly on foreign aid.

Suggested Citation

  • Henry Otoo & Sampson Takyi Appiah & Albert Buabeng & M. Apodei, 2020. "Testing Causality and Cointegration of Savings and Investment In Ghana," European Journal of Engineering and Technology Research, European Open Science, vol. 5(2), pages 132-137, February.
    • Handle: RePEc:epw:ejeng0:v:5:y:2020:i:2:id:61734
    DOI: 10.24018/ejeng.2020.5.2.1734
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