savings and investment
his study investigates the relationship between saving, investment and economic growth for India over the period 1950-51 to 2007-08. The literature on the role of saving in promoting economic growth generally points to saving led growth. However, few studies show evidence for growth driven saving and some suggest no relationship. In theory, saving may stimulate economic growth, economic growth may also induce saving. This paper adds to the literature by analysing the existence and nature of these causal relationships. The present analysis focuses on India, where saving rate has been the most pronounced. The co-integration analysis suggests that there is a long-run equilibrium relationship. The results of Granger causality test show that higher saving and investment lead to higher economic growth, but the reciprocal causality is not observed. Further, it is empirically evident that saving and investment led growth is coming from the household sector. It may be inferred from the results that India is not too close to the technological frontier and hence not catching up with the new technologies.
JEL Classification : F43, E21, E22, C32
Keywords : Saving, Investment, Economic growth, Granger causality
Introduction
The relationship between saving, investment and economic growth has puzzled economists ever since economics became a scientific discipline. Generally, a portion of income is saved and put into investment. In a closed economy, the economy as a whole can save only as much as its income. The economy as a whole may reduce the consumption expenditure in relation to a given level of income and consequently increase its propensity to save. An exogeneous increase in the desire to save leads to an unchanged level of saving but at a lower level of income. If we define both saving and investment as the difference between gross domestic product and consumption, it may tend to be interpreted in terms of cause-and-effect relationship.
The role of domestic saving and
JEL Classification : F43, E21, E22, C32
Keywords : Saving, Investment, Economic growth, Granger causality
Introduction
The relationship between saving, investment and economic growth has puzzled economists ever since economics became a scientific discipline. Generally, a portion of income is saved and put into investment. In a closed economy, the economy as a whole can save only as much as its income. The economy as a whole may reduce the consumption expenditure in relation to a given level of income and consequently increase its propensity to save. An exogeneous increase in the desire to save leads to an unchanged level of saving but at a lower level of income. If we define both saving and investment as the difference between gross domestic product and consumption, it may tend to be interpreted in terms of cause-and-effect relationship.
The role of domestic saving and
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