Saving for Higher Growth? The Dominant Effect of Saving Over the Other Variables on Economic Growth Revisited

Abstract

Economic theory does not merely define saving as a forego of current consumption but a determinant of economic growth for the long-run. The main reason is that the growth rate of real GDP was consistent with the rising saving rate on average and, in this respect, stock of capital is given among the other economic fundamentals which induce economic growth. Conversely, literature composed on this topic suggests that recently countries have concentrated on attaining and sustaining economic growth via energy use, urban population growth, domestic credit offered by private banks to investors as well as competitive real exchange rate that can guarantee higher employment and rising aggregate demand rather than being dependent on capital accumulation. In referring to the panel data encapsulating a family of 23 countries and 57 independent variables promising economic growth in the long-run, this study indispensably aims to scrutinize the inextricable relationship between saving and economic growth that is theoretically explained through The Classical Theory based on firmly believed Say’s Law, Solow Growth Model, LifeCycle Hypothesis, and Harrod-Domar Economic Growth Model together with defining whether theory of economic growth and saving is strongly testified by econometrics method or not. How does the panel data analysis validate the dominant effect of saving rate in comparison to that of the other explanatory variables in explaining the variation in GDP growth rate as a measure of economic growth?