An Empirical Investigating on the Causal Relationship between Economic Growth and the Savings Rate
Cardiff Metropolitan University
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Abstract This paper seeks to examine the relationship between the economic growth rate and the savings rate. The empirical analysis evaluates the linear relationship as well as the causal affiliation. The author employs ordinary least square regressions, Dickey-Fuller tests, vector auto regressions and Granger causality methods in attempt to finalize a conclusive relationship. The paper thus utilizes time series data across 20 countries through a 35-year period, implying precision with such techniques. The central argument of relevant literature relates to the exogeneity of the savings rate in long run growth models. This paper finds principally that the savings rate and economics growth rate correlate in the given time period for a majority of the countries. The causal relationship transforms with the transition from low-income to high-income countries. The literature iterates that savings cause economic growth through investment opportunities. Within low-income countries this relationship can be acknowledged but high-income countries depict a contrary causality.
BSc Hons ECONOMICS
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