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Does saving stimulate growth? the case of Malaysia

Omar, Masitah and Masih, Mansur (2017): Does saving stimulate growth? the case of Malaysia.

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Abstract

In the 21th century, Malaysia became one of the fastest growing economies in Southeast Asian region and has been ranked as the third highest savings rate economy in the Newly Industrializing Economies (NIEs). This impressive performance has attracted the economists and international’s attention which demands some explanation. However, in empirical side, the savings-led growth notion is still inconclusive for the Malaysian economy. The debate really centres on ‘which causes which’. This paper is an attempt to re-investigate the issue that prevails. By using the econometric approach of ARDL and extended data of 47 years which can be considered as ‘fresh data’, the study concludes that there is a uni-directional causality existing between savings and growth, where savings lead to growth, and not the other way around. Thus, this finding becomes additional empirical evidence that supports the previous literature of savings-led growth. The policy for promoting savings should be geared up in order to stimulate growth and eventually will lead to the well-being of the Malaysian economy.

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