Savings and investment in developing countries: Granger causality test

Abstract

Additional evidence on savings and investment relationship in developing countries has been provided using conventional and time-series econometrics techniques. This paper finds no long-run relationship between savings and investment in seven countries of the sample, which implies increased degree of capital mobility and weakening of savings and investment relationship since early 1970s. There is bidirectional causality between savings and investment in South Africa, while there is unidirectional causality from savings to investment in Pakistan and Sri Lanka. There is no causality in India, Philippines, Malaysia, and Iran. This divergence might be due to country-specific policies and economic conditions. Strong correlation between savings and investment does not rule out capital mobility across countries.

JEL classification: C23, F31, F21, F30