Causal Links among Saving, Investment and Growth and Determinants of Saving in Sub-Saharan Africa: Evidence from Ethiopia

Abstract

The relationship between saving, investment and GDP still remains an empirical issue. In their aspiration to catch up the rest of the world, developing countries provides a special place on this matter. This paper tried to investigate the main determinants of saving and the connection among saving, investment and GDP in the case of Ethiopia using a combination of
time series models. The paper finds export, inflation and lag government expenditure to have a statistically significant short and long term impact on the saving rate. Growth of income has a positive effect on rate of saving and
the impulse response function shows the relevance of the neoclassical growth model in explaining the relationship between the saving rate and growth of income albeit lack of statistically significant causality between saving and investment in either direction. Although they may not be conclusive, the results suggest a more conducive policy environment and measures to boost domestic saving so as to induce growth from inside.