NEXUS BETWEEN SAVINGS, INVESTMENT AND ECONOMIC GROWTH IN INDIA

Sachin N. Mehta and Gaurang D. Rami

No 2014-12-12, Working papers from Voice of Research

Abstract: This paper examines the relationship between gross domestic product (GDP), gross domestic savings (GDS) and gross domestic investment (GDI) for India during the period 1951- 2012. Vector Error Correction Method and co-integration techniques are used for analyzing the relationship between gross domestic product (GDP), gross domestic savings (GDS) and gross domestic investment (GDI) in this study. The Johansen co-integration test indicates gross domestic product (GDP), gross domestic savings (GDS) and gross domestic investment (GDI) are co-integrated, and that a long-run equilibrium exists between them. The Vector Error Correction test reveals that there is unidirectional causality running from gross domestic savings (GDS) and gross domestic investment (GDI) to gross domestic product (GDP) in the short run as well as in the long run. It means gross domestic savings (GDS) and gross domestic investment (GDI) lead to gross domestic product (GDP) but gross domestic product (GDP) does not lead to gross domestic savings (GDS) and gross domestic investment (GDI). Key words: Economic Growth, Saving, Investment, Causality, Co-Integration. VECM

Date: 2014-12
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