An Empirical Assessment of Savings - Growth Nexus in India

Authors

  •   Shradha Hitesh Budhedeo Assistant Professor, Department of Business Economics, Faculty of Commerce, M. S. University of Baroda, Vadodara - 390 002, Gujarat

DOI:

https://doi.org/10.17010/ijf/2015/v9i12/84381

Keywords:

Causality

, Cointegration, Unit Root, Saving, Growth

M410

, M420, M490

Paper Submission Date

, July 10, 2015, Paper sent back for Revision, September 20, Paper Acceptance Date, October 20, 2015.

Abstract

The behaviour of savings and economic growth in India has been puzzling. Savings rates have been progressively rising and have been impressive throughout the planned economic period. In contrast, the growth rates have been increasing slowly and are unpredictably low. Economic growth has failed to keep pace with the high savings rates in the economy. Upward sailing savings rates are often paralleled with sharp dips in growth rates. Hence, the progress of savings rates does not get reflected in the growth scenario. This phenomenon of 'high savings and low growth' made it imperative to investigate the nature and direction of causal influence between savings and growth in India. Hence, there was a need to empirically explore whether saving causes growth, or growth leads to savings, or if there was a bi-directional causal relationship between saving and growth, or did they really share any relationship at all. An examination of the causality issue between saving and growth would enable policymakers to devise such economic policies as may be fruitful in meeting the planned targets. This study examined the association between savings and economic growth in India over the planned economic era from 1950-2013 by engaging Granger causality (VECM) estimation technique using the cointegration approach. The empirical results indicated a bi-directional mutual causality between saving and income (both total and non-agricultural income) in the short-run. In the long-run, nominal national income Granger caused gross domestic savings uni-directionally, but savings shared a two-way causal relationship with nominal non-agricultural income.

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Published

2015-12-01

How to Cite

Budhedeo, S. H. (2015). An Empirical Assessment of Savings - Growth Nexus in India. Indian Journal of Finance, 9(12), 19–40. https://doi.org/10.17010/ijf/2015/v9i12/84381

Issue

Volume 9, Issue 12, December 2015

Section

Articles
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