Gross Domestic Saving Nexus Economic Growth: Evidence From Ethiopia

Economic growth is essential for economic development and achieving high real growth rate is the key aims of developing countries. And objective of this study was to analysis causal relationship between gross saving and real GDP growth in Ethiopia by using annual data for the period of 1981 to 2017. Three stage analyses were undertaken: First, the time series properties of growth rate of domestic savings, growth rate of gross domestic product per capita, Trade balance, human capital investment real interest rate, Inflation, gross capital formation, growth rate of broad money, Aggregate consumption expenditure rate, were determined by ADF unit root test procedure. The estimated results indicate none of the variables were I (2). Second, the co-integration test was undertaken by ARDL bound test. The long run and short run relationship the level of GDP per capita and growth rate of domestic saving was performed. As result suggested growth rate of domestic saving was insignificant in long run. But growth rate of domestic saving was negatively affected growth rate of GDP per capita in short run and significant at 5% level. Similarly, the effect on growth rate of domestic saving by growth rate of GDP per capital was performed. The result indicated, up trend of GDP per capita was positively affected growth rate of domestic saving in both short run and long run. The causality test was under taken by Granger test; the result suggested that there exist bidirectional causality between growth rate of domestic saving and growth rate of GDP per capital in Ethiopia. Thus the government should take steps to facilitate for investment through which saving affect the economy.