Asian Journal of Research in Business Economics and Management
Year : 2012, Volume : 2, Issue : 10
First page : ( 259) Last page : ( 272)
Print ISSN : 0000-0000. Online ISSN : 2249-7307.

Saving and economic growth in India: A granger causality analysis

Dr. Budhedeo Shradha H.

Assistant Professor, Department of Business Economics, Faculty of Commerce, M. S. University of Baroda, Vadodara, Gujarat, India.

Online published on 6 October, 2012.

Abstract

Literature reveals that theoretically, domestic savings and economic growth share a two-way positive relationship. On one hand, savings are a driving force behind economic growth while on the other, higher growth encourages higher savings. The close association between saving and growth has attracted attention of researchers on the issue of causal behaviour between the two. However, in the Indian case, the theoretical relationship between saving and growth does not reflect in the trends of saving rates and growth rates. The past six decades have witnessed impressive growth in Indian savings but the economic growth rate has not matched the high saving rates in the country. The Indian economy seems to be characterised by the peculiar feature of ‘high saving and low growth’. In this backdrop, the present study attempts to empirically examine the growth-saving relationship in India for determining the causal linkages between the two using annual data for over sixty years of the planned economic era. The study has examined the causal relationship between growth rate of saving and economic growth rate using the unit root test and Wald's F statistic for Granger causality testing. The empirical results reveal that there is absence of any causal relationship between saving growth rates and economic growth rates in either direction for India and hence the two variables are independent of each other.

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Keywords

Saving, Economic Growth, Unit Root Test, Granger Causality, Wald's F test.

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