Abstract
The wide range of controversies surrounding the direction of causality between savings and economic growth necessitated this study. The study was intended to investigate the relationship between gross domestic savings and economic growth in Ghana; with the specific objective of finding whether there exists a long run relationship between them, and it was also intended to ascertain the direction of causality between the two running actors in the study over the period of 1972 to 2013. The study employed Johansen cointegration test to reveal no long run relationship between gross domestic savings and economic growth in Ghana. This necessitated the usage of the VAR technique to estimate the short run relationships. The finding was that there exists a unidirectional line of causation running from gross domestic savings to economic growth in Ghana. It is strongly recommended therefore that the Bank of Ghana will use the monetary policy instruments to influence and advise the commercial banks on the need to peg the deposit rate relatively higher at least equal or little above the existing interest rate. This is because the deposit rate is the opportunity cost of money demand for other purposes.
Highlights
The dynamic relationship between savings and economic growth among developing economies continues to receive significant empirical attention in the ever growing literature
The study was intended to investigate the relationship between gross domestic savings and economic growth in Ghana; with the specific objective of finding whether there exists a long run relationship between them, and it was intended to ascertain the direction of causality between the two running actors in the study over the period of 1972 to 2013
The finding was that there exists a unidirectional line of causation running from gross domestic savings to economic growth in Ghana
Summary
The dynamic relationship between savings and economic growth among developing economies continues to receive significant empirical attention in the ever growing literature. The role of savings in capital accumulation in realizing growth in output per capita was highlighted in the Solow-Swan [1] and Romer [2] growth models. They clarified the integral role played by savings in raising the steady state output per capita as well as the growth rate of output per capita.
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