Abstract
Introduction. The problem under discussion is whether savings are associated with investments in the long-term and whether savings predict investment with feedback or not. Addressing the problem is important since it informs policy formulation in the financial sector in ensuring efficient financial intermediation. The purpose of the article is looks at the savings-investment relationship for Ghana during the period 1960 to 2016. Methodology. Utilizing ARDL (with bounds testing) approach, the Granger predictive test, the Generalised Impulse Response Function, and Variance decomposition function. Results. The results indicate that a 1% increase in savings, GDP and financial development would result in a 0.069%, 0.266% and 0.125% increase respectively in investment in the short-term. It is discovered that savings do not cause investment in the long-run but rather in the short-run. The Granger causality test establishes a unidirectional causality running from savings to investment in the short-run. Discussion and Conclusion. The ramifications of the finding are that there is capital fixed status globally. Future examinations ought to consider structural break(s) issues as well as panel analysis to determine if the findings of the current study would be reproduced.
Highlights
The problem under discussion is whether savings are associated with investments in the long-term and whether savings predict investment with feedback or not
The results indicate that a 1% increase in savings, Gross domestic product (GDP) and financial development would result in a 0.069%, 0.266% and 0.125% increase respectively in investment in the short-term
A 1% increase in savings, GDP, and financial development would result in a 0.069%, 0.266% and 0.125% increase respectively in investment
Summary
The problem under discussion is whether savings are associated with investments in the long-term and whether savings predict investment with feedback or not. Feldstein and Horioka note that the savings-investment relationship is not predictable with capital versatility across fringes for the short run. This proposes that capital is fixed universally [6]. On the off chance that savings are associated with an investment, the legitimate ramifications are that capital is fixed globally. Be that as it may, on the off chance that savings are not related to investment, at that point capital is versatile globally In this way, it is imperative to investigate the legitimacy of the savings-investments relationship theory as an experimental actuality in an open but small economy such as Ghana
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