An econometric analysis of the causal relationship between gross domestic savings and economic growth in Ghana (1961-2008).

Loading...
Thumbnail Image
Date
August, 2009.
Journal Title
Journal ISSN
Volume Title
Publisher
Abstract
The conventional perception is that savings contribute to higher investment and hence higher real GDP growth in the short run. Thus, higher saving rates cause higher economic growth. However, theories and empirical works have shown that the direction of causality between gross domestic savings and economic growth may run in various directions: from gross domestic savings to economic growth, from economic growth to gross domestic savings, bidirectional causality between gross domestic savings and economic growth or no causal relationship between them. The objective of this study was to find the direction of causality between gross domestic savings and economic growth (using real per capita GDP as a measure of growth) of Ghana using annual time series data from 1961-2008. In the process, three analyses were undertaken. First, the time series properties of growth rate of gross domestic savings and the growth rate of real per capita GDP were ascertained using the ADF unit root test procedure. The estimated results indicate one order of integration or I(1) for the series. Second, the long-run relationship between the series was explored utilizing Engel – Granger Cointegration Test procedure. The result of the test indicated that the series were not cointegrated. Finally, the causal relationship between growth rate of gross domestic savings and the growth rate of real per capita GDP was performed using the Vector Autoregressive (VAR) model and Pairwise Granger Causality Test. The results showed that there was bi-directional causal relationship between growth rate of gross domestic savings and growth rate of real per capita GDP in Ghana. Based on the findings of the study, certain monetary and fiscal policies as well as legislation and other measures have been recommended to boost gross domestic savings mobilisation and to increase growth.
Description
A thesis presented
Keywords
Citation