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Domestic Savings And Economic Growth in South Africa

Getachew, Abis (2015): Domestic Savings And Economic Growth in South Africa.

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Abstract

This paper examines the causal relationship between domestic saving and economic growth in South Africa from the period of 1960 – 2013. The VAR based Johansen co-integration test is employed to check the long-run relationship and the Granger causality test is used to check the causal relationships. The Johansen co-integration test shows that there is one co-integrating vector where gross fixed capital formation (GFCF) is included in the model as an exogenous variable. This implies that having GFCF as exogenous variable in the saving-growth model, at least there should be one direction of causality in the tri-variate model. The granger causality test reveals the existence of 5% statistically significant unidirectional causality that runs from gross saving and economic growth to the gross fixed capital formation in both the second and the third lags of the estimation. This finding recommends economic policy makers of the country to focus on boosting economic growth and domestic savings to enhance the gross capital formation. Further studies should also be conducted to identify the major determinants of economic growth and national savings so that policy makers can work on these factors to encourage the capital formation process.

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