International Journal of Social Science & Economic Research
Submit Paper


Prof. Dhyani Mehta

|| ||

Prof. Dhyani Mehta
Assistant Professor, Institute of Management Nirma University.

Mehta, Prof. Dhyani. "CAUSAL RELATION BETWEEN DOMESTIC SAVING AND ECONOMIC GROWTH: EVIDENCE FROM INDIAN ECONOMY." Int. j. of Social Science and Economic Research, vol. 3, no. 8, Aug. 2018, pp. 4354-4366, Accessed Aug. 2018.
Mehta, P. (2018, August). CAUSAL RELATION BETWEEN DOMESTIC SAVING AND ECONOMIC GROWTH: EVIDENCE FROM INDIAN ECONOMY. Int. j. of Social Science and Economic Research, 3(8), 4354-4366. Retrieved from
Mehta, Prof. Dhyani. "CAUSAL RELATION BETWEEN DOMESTIC SAVING AND ECONOMIC GROWTH: EVIDENCE FROM INDIAN ECONOMY." Int. j. of Social Science and Economic Research 3, no. 8 (August 2018), 4354-4366. Accessed August, 2018.

[1]. Anoruo E., and Ahmad, Y., 2001, Causal Relationship between Domestic Savings and Economic Growth: Evidence from Seven African Countries, African Development Bank, Blackwell Publishers, Oxford.
[2]. Attanasio, O.P., Picci, L., and Scorcu, A.E., 2000, Saving, Growth, and Investment: A Macroeconomic Analysis Using a Panel of Countries, The Review of Economics and Statistics, Vol. 82, No.2:182-211.
[3]. Bacha, E.L. (1990), 'A Three-Gap Model of Foreign Transfers and the GDP Growth Rate in Developing Countries', Journal of Development Economics, Vol. 32, pp. 279- 96.
[4]. Baharumshah et al., 2003, Savings Dynamic in Asian Countries, Journal of Asian Economics, 13: 827-845.
[5]. Bosworth, B.P. (1993), 'Saving and Investment in Global Economy', Brookings, Washington DC.
[6]. Carroll, C. and D. Weil (1994), 'Saving Behavior in Ten Developing Countries', Carnegie Rochester Conference Series on Public Policy, Vol. 40, North-Holland, Amsterdam.
[7]. DeGregorio, J. (1992), 'Economic Growth in Latin America', Journal of Development Economics, Vol. 39, pp. 59-84.
[8]. Domer, E.D. (1946), 'Capital Expansion, Rate of Growth, and Employment', Econometrica, Vol. 14, pp. 137-47.
[9]. Gavin, M., R. Hausmann and E. Talvi (1997), 'Saving Behavior in Latin America: Overview and Policy Issues', in R. Hausmann and Reisen R. (eds.), Promoting Savings in Latin America, OECD and Inter-America Development Bank, Paris.
[10]. Granger, C.W.J. (1969), Investigating causal relations by econometric models and cross pectral methods, Econometrica, Vol. 37, July: 424-38
[11]. Granger, C.W.J., Newbold,P (1974), "Spurious Regression in Econometrics" ,Journal of Econometrics.
[12]. Greene,W.(2003), Econometric Analysis, 3th ed, EnglewoodCliffs, N.J.: Prentice Hall.
[13]. Gujarati, D. (2011). Econometrics By Example. Palgrave Macmillian.
[14]. Harrod, R. (1939), 'An Essay in Dynamic Theory', Economic Journal, Vol. 49, pp. 14- 33.
[15]. Jappelli, T. and M. Pagano (1996), 'The Determinant of Saving: Lessons from Italy', paper presented at the Inter-America Development Bank Conference on Determinants of Domestic Saving in Latin America, Bogota, Colombia.
[16]. Johanson, S and K, Joselius (1990), Maximum Likelihood Estimation and Inference on Cointegration with Application to the Demand for Money, Oxford Bulletin of Economics and Statistics, 52: 169-210
[17]. Johanson, S. (1988), Statistical Analysis of Co-integrating Vectors, Journal of Economic Dynamics and Control, 12: 231-254.
[18]. Maddison, A. (1992), 'A Long Run Perspective on Saving', Scandinavian Journal of Economics, Vol. 94, pp. 181-96
[19]. Mavrotas, G. and Kelly, R., 2001, Old Wine in New Bottles: Testing Causality between Savings and Growth, The Manchester School, Vol.69: 97-105.
[20]. Mehta, D. (2016). Behaviour of Indian Saving & Investment: An Empirical Investigation of Keynesian and classical Debate. ANVESH Doctoral Conference in management .
[21]. Modigliani, F. (1970), 'The Life Cycle Hypothesis of Saving and Inter-country Difference in Saving Ratio', in W.A. Eltis, M.F. Scott and J.N. Wolfe (eds.), Induction, Trade and Growth: Essays in Honor of Sir Roy Harrod, Clarendon Press, London.
[22]. Modigliani, F. (1990), 'Recent Development in Saving Rates: A Life Cycle Perspective', Frisch Lecture, Sixth World of Congress of the Econometric Society, Barcelona, Spain.
[23]. Otani, I. and D. Villanueva (1990), 'Long-term Growth in Developing Countries and Its Determinants: An Empirical Analysis', World Development, Vol. 18, pp. 769-83.
[24]. Reserve Bank of India. (2016-17). Handbook of Statistic. Government of India.
[25]. Saltz, I.S. (1999), 'An Examination of the Causal Relationship Between savings and Growth in the Third World', Journal of Economics and Finance, Vol. 23, pp. 90-98.
[26]. Seth, B. (2011). Long Run and Short Run Saving Investment Relationship in India. RBI working Paper series .
[27]. Sinha, D. (1997). Saving-Investment Relationship In Japan And Other Asian Countries. Asia Pacific conference proceedings .
[28]. Sinha, D., and Sinha, T., 1996, The Role of Saving in Pakistan's Economic Growth, The Journal of Applied Business Research, Vol. 15: No 1.
[29]. Sinha, D., and Sinha, T., 1998, Cart Before Horse? The Saving-Growth Nexus in Mexico, Economics Letter, 61: 43-47.
[30]. Sinha, D., and Sinha, T., 1999, Saving and Economic Growth in Sri Lanka, Indian Journal of Applied Economics, Vol. 8 No. 3 163-174.
[31]. Sinha, D., and Sinha, T., 2000, Tests of Granger Causality Between Saving and Economic Growth in the Philippines, Journal of Social and Economic Development, Vol. II, No 2
[32]. Solow, R.M. (1956), 'A Contribution to the Theory of Economic Growth', Quarterly Journal of Economics, Vol. 70, pp. 65-94.
[33]. Stern, N. (1991), 'The Determinants of Growth', Economic Journal, Vol. 101, pp. 122- 33.
[34]. Toda HY, Phillips PCB (1993) Vector autoregression and causality. Econometrica 61:1367 1393
[35]. Toda HY, Phillips PCB (1994) Vector autoregression and causality: a theoretical overview and simulation study. Econometric Reviews 13:259-285
[36]. Toda HY, Yamamoto T (1995) Statistical inference in vector autogression with possibly integrated processes. Journal of Econometrics 66:225-250

This study empirically investigates causal relationship and the direction of causality between domestic saving and economic growth in India. The variables used for study are Gross Domestic Savings and Gross Domestic Product (as proxy of economic growth). The methodology employed is econometric models for testing long run and short run causality using three different causality tests - Likelihood ratio test, Lagrange multiplier and Wald test. Augmented DickeyFuller (ADF) test shows that the variables are non-stationary at levels, but becomes stationary at first differences. Long run relationship among the variables is found in cointegration test. Causality tests find uni-directional causal relation between gross domestic savings to gross domestic product in short-run and bi-directional causality in long run. Results imply that policymakers should design and implement policies that boost savings, which in turn will boost economic growth. Increase in domestic savings will solve some of the problems for Indian industry like, over dependency on foreign investment and high cost of capital.