An Empirical Investigation into the Investment–Saving Relationship Through Granger Non-Causality Panel Tests

Antonio Focacci ()
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Antonio Focacci: Department of Management, University of Bologna, 40126 Bologna, Italy

JRFM, 2025, vol. 18, issue 7, 1-14

Abstract: The investment–saving relationship has been the subject of much debate. On the one hand, there is the conventional mainstream neoclassical school of thought that advocates for the idea that saving determines investment. On the other hand, heterodox economists (mainly in the post-Keynesian/structuralist tradition) posit an inverse relationship between these variables. This article empirically investigates the direction of causality in order to contribute to the existing literature on the topic. To this end, two Granger panel tests are applied to a dataset of 106 countries over the period from 1980 to 2023. The econometric techniques used are effective in accounting for both cross-sectional dependence and heterogeneity in the data. In summary, our findings align with the theoretical models that posit bidirectional causality as the most probable explanation of the mechanism driving investment and saving. More specifically, they are consistent with post-Keynesian (demand-led) assumptions describing an open economy operating below its maximum potential growth rate within a current account solvency constraint.

Keywords: investments; savings; saving–investment causality; Granger non-causality (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2025
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