Jangili, Ramesh (2011): Causal relationship between saving, investment and economic growth for India – what does the relation imply? Published in: Reserve Bank of India Occasional Papers , Vol. 32, No. 1 (2011): pp. 25-39.
Download (2MB) | Preview
This 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.
|Item Type:||MPRA Paper|
|Original Title:||Causal relationship between saving, investment and economic growth for India – what does the relation imply?|
|Keywords:||Saving, Investment, Economic growth, Granger causality|
|Subjects:||C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models; Multiple Variables > C32 - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
E - Macroeconomics and Monetary Economics > E2 - Macroeconomics: Consumption, Saving, Production, Employment, and Investment > E22 - Capital; Investment; Capacity
F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F43 - Economic Growth of Open Economies
E - Macroeconomics and Monetary Economics > E2 - Macroeconomics: Consumption, Saving, Production, Employment, and Investment > E21 - Consumption; Saving; Wealth
|Depositing User:||Ramesh Jangili|
|Date Deposited:||11. Jul 2012 12:15|
|Last Modified:||13. Feb 2013 04:58|
Aghion, Philippe., Comin, Diego and Howitt, Peter. (2006). ‘‘When Does Domestic Saving Matter for Economic Growth?’’ NBER Working Paper No.12275 (May).
Carroll, C. and Weil, D. (1994). ‘‘Saving and Growth: A Reinterpretation’’, Carnegie-Rochester Conference Series on Public Policy, Vol. 40, June, 133-192.
Dickey, D.A. and Fuller, W.A. (1979). ‘‘Distribution of the Estimators for Autoregressive Time Series with a Unit Root’’. Journal of the American Statistical Association, Vol. 74, 427-431.
Dickey, D.A. and Fuller, W.A. (1981). ‘‘Likelihood Ratio Statistics for Autoregressive Time Series with Unit Root’’, Econometrica, Vol. 89, No. 4, 1052- 1072.
Government of India (2009). ‘‘National Accounts Statistics 2009,’’ Central Statistical Organisation, Ministry of Statistics & Programme Implementation and earlier publications on the subject.
Granger, C. (1969). ‘‘Investigating Causal Relations by Economic Models and Cross-Spectral Methods’, Econometrica, Vol. 37, No. 3, 424-438.
Granger, C. (1980). ‘‘Causality, Cointegration, and Control’’, Journal of Economic Dynamics and Control, Vol. 12, 511-559.
Jappelli,T. and Pagano,M. (1994). ‘‘Saving,Growth and LiquidityConstraints’’, The Quarterly Journal of Economics, Vol. 109, No. 1 (Feb), 83-109.
Johansen, S. (1988). ‘‘Statistical Analysis of Cointegrating Vectors’, Journal of Economic Dynamics and Control, Vol. 12, No.2-3, 231-254.
Johansen, S. and Juselius, K. (1990), “Maximum likelihood Estimation and Inference on co-integration - with Applications to the Demand for Money”, Oxford Bulletin of Economics and Statistics, Vol. 52, 169-210.
Lewis, W.A. (1955). ‘‘The Theory of Economic Growth’’, Homewood, III: Irwin.
Mühleisen,M. (1997). ‘‘Improving India’s Saving Performance’’, IMFWorking Paper WP97/4, International Monetary Fund,Washington, D.C.
Sinha, D. (1996). ‘‘Saving and economic growth in India’’. Economia Internazionale, Vol. 49, No. 4, 637–647.
Sinha,D. and Sinha,T. (2008). ‘‘Relationships amongHousehold saving, Public saving, Corporate saving and Economic growth’’, Journal of International Development, Vol. 20, No. 2, 181-186.
Solow, R. M. (1956). ‘‘A Contribution to the Theory of Economic Growth’’, Quarterly Journal of Economics, Vol. 70, No. 1 (Feb), 65-94.
Toda,H.Y. and Phillips, P.C.B. (1994). ‘‘VectorAutoregressions and Causality: A Theoretical Overview and Simulation Study’’, Econometric Reviews, Vol. 13, 259-285.
Verma, R. (2007). ‘‘Savings, investment and Growth in India’’, South Asia Economic Journal, Vol. 8, No.1, 87-98.