Munich Personal RePEc Archive

Saving, Investment and Growth: A Causality Test

Zangeneh, Hamid (2006): Saving, Investment and Growth: A Causality Test. Published in: Iranian Economic review , Vol. 11, No. 16 (2006): pp. 165-175.

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All agree to the answer, i.e., they agree that accumulation of capital was, is, and will remain the most significant problem of the third world (the south) countries. The third world countries cannot accumulate capital because of low-income levels, which in turn, leads to low saving and investments. But low saving and hence low investments are responsible for low income. A catch 22 problem for the third world countries that is badly in need of solutions.

This paper shows that we could conclude a one-way Granger causalities running from savings to investment, and from disposable income to investment. This is true with one or more lagged values as independent variable. This means, we need undertake policies that foster savings to spur investment, and as a result, capital accumulation.

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