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Saving, Investment, and Growth: A Causality Test

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  • Hamid Zangeneh

    () (Professor of Economics, Widener University, Chester, Pennsylvania 19013, USA)

Abstract

In the second half of the last century, tremendous efforts were devoted to identifying sources of economic success by a few countries and causes of failure by most. In this process a voluminous literature ranging from the neo-classical to Marxist, neo-Marxist, and dependency theories has been developed to answer the question of disparity among different countries of the north vis-à-vis those of the south. They all agree that accumulation of capital (social, human, and physical) was, is, and will remain one of the most significant problems of the third world countries —the south- for economic growth. Traditionally we have assumed that risks and profits drive investment, investment drives growth, and growth, in turn, is the driving force behind saving. More income leads to more savings. In this study, using Iranian data, a causality test has been performed to ascertain whether this sequence is true. We found it is not the case, and saving precedes investment. If so, macroeconomic policies must be directed as increasing saving to foster further investment and economic growth and not the other way around.

Suggested Citation

  • Hamid Zangeneh, 2006. "Saving, Investment, and Growth: A Causality Test," Iranian Economic Review (IER), Faculty of Economics,University of Tehran.Tehran,Iran, vol. 11(2), pages 165-175, spring.
  • Handle: RePEc:eut:journl:v:11:y:2006:i:2:p:165
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    References listed on IDEAS

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    1. Deepak Lal, 1993. "Poverty and Development," UCLA Economics Working Papers 707, UCLA Department of Economics.
    2. Martin Feldstein, 1994. "Tax policy and international capital flows," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 130(4), pages 675-697, December.
    3. Lucian Cernat & Radu Vranceanu, 2002. "Globalisation and Development: New Evidence from Central and Eastern Europe," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 44(4), pages 119-136, December.
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    Cited by:

    1. Zangeneh, Hamid, 2010. "Iran: Past, Present and the Future," MPRA Paper 26283, University Library of Munich, Germany.

    More about this item

    Keywords

    saving; investment; growth; causality.;

    JEL classification:

    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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