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A multivariate analysis of savings, investment and growth in Nepal

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  • Budha, Birendra

Abstract

This paper examines the relationship between the gross domestic savings, investment and growth for Nepal using annual time series data for the period of 1974/75 to 2009/10. The study employs the Autoregressive Distributed Lag (ARDL) approach to test for cointegration and Error correction based Granger causality analysis for exploring the causality between the variables. Empirical results show that there exist cointegration between gross domestic savings, investment and gross domestic product when each of these is taken as dependent variable. Granger causality analysis shows that there exists short-run bidirectional causality between investment and gross domestic product as well as between gross domestic savings and investment. Nevertheless, no short-run causality is found between gross domestic savings and gross domestic product. Thus, the policy of accelerating growth by promoting investment works to some extant only since the long-run investment multiplier is below one.

Suggested Citation

  • Budha, Birendra, 2012. "A multivariate analysis of savings, investment and growth in Nepal," MPRA Paper 43346, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:43346
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    File URL: https://mpra.ub.uni-muenchen.de/43346/1/MPRA_paper_43346.pdf
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    References listed on IDEAS

    as
    1. Narayan, Paresh Kumar & Smyth, Russell, 2008. "Energy consumption and real GDP in G7 countries: New evidence from panel cointegration with structural breaks," Energy Economics, Elsevier, vol. 30(5), pages 2331-2341, September.
    2. Kremers, Jeroen J M & Ericsson, Neil R & Dolado, Juan J, 1992. "The Power of Cointegration Tests," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 325-348, August.
    3. Nicholas Odhiambo, 2007. "Supply‐leading versus Demand‐following Hypothesis: Empirical Evidence from Three SSA Countries," African Development Review, African Development Bank, vol. 19(2), pages 257-280.
    4. Mohsen Bahmani-Oskooee & Yongqing Wang, 2007. "How Stable Is The Demand For Money In China?," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 32(1), pages 21-33, June.
    5. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
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    More about this item

    Keywords

    gross domestic savings; gross fixed capital formation; gross domestic product;

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment

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