Savings-Growth Nexus Revisited: An Empirical Analysis from Nigeria

Abiodun Olayiwola, Solomon O. Okunade and Musbau O. Fatai

African Journal of Economic Review, 2021, vol. 09, issue 4

Abstract: This study re-visits the ongoing debate on the savings-growth nexus in developing countries, taking into account the significance of the unique characteristics of the pre- and post-democratic dispensations in Nigeria as a case study. A multivariate VECM Causality test for pre- and postdemocracy samples were carried out using data covering the period of 19 years (1981 to 1999) for pre- democracy and 20 years (2000 to 2019) for post-democracy era. In the short run, we discovered that there was no significant causal relationship between savings and growth during the pre-democracy period but there exists a unidirectional causality running from savings to growth in the post-democracy period. However, we found a bidirectional causal relationship between savings and growth in the long run for both pre-and post-democracy periods. Therefore, this study concluded that savings causes economic growth in post democracy period in line with Mill– Marshall–Solow school of thought (short-run period) while both savings and growth reinforce each other in the long-run for both periods. Thus, we recommend that Nigerian policy-makers and government should embark on monetary policies that would increase deposit rates to encourage more savings so as to mobilize funds from surplus-side to the deficit-side of the economy for productive investments and at the same time come up with a regulation that would reduce offbalance sheet activities of most financial institutions in the country.

Keywords: International Development; Public Economics (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:ags:afjecr:315822

DOI: 10.22004/ag.econ.315822

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