Abstract
This paper sought to identify the causal relationship between saving and investment in Ghana as these econometric indicators serve as a measure for the economic development and wellbeing of developing countries. Annual time series of Saving and Investment in Ghana spanning from 1980 to 2017 were considered. First, the Augmented Dickey-Fuller (ADF) and the Elliott-Rothenberg-Stock (ERS) tests are carried out to determine the integration order of saving and investment data series. The Johansen's trace and maximum eigenvalue tests for cointegration were performed to ascertain the level of cointegration which suggested a long-run relationship between the saving and investment in Ghana despite potential deviations in the short-run. Finally, the Granger Causality test suggested saving as having a causal relationship with investment, while the reverse indicated no relationship. The study, therefore, recommended intensifying saving, both at the national and household level as a crucial direction for consideration if Ghana intends to finance her investments rather than relying mostly on foreign aid.
Highlights
This paper sought to identify the causal relationship between saving and investment in Ghana as these econometric indicators serve as a measure for the economic development and wellbeing of developing countries
The annual time series variables, Savings and Investment in Ghana were obtained from the World Bank and the full table is represented under Appendix
When time series are non-stationary, the existence of a long-term property is removed by an appropriate differentiation; a cointegration test is performed to establish the long-term property
Summary
This paper sought to identify the causal relationship between saving and investment in Ghana as these econometric indicators serve as a measure for the economic development and wellbeing of developing countries. Annual time series of Saving and Investment in Ghana spanning from 1980 to 2017 were considered. The Augmented DickeyFuller (ADF) and the Elliott-Rothenberg-Stock (ERS) tests are carried out to determine the integration order of saving and investment data series. The Johansen's trace and maximum eigenvalue tests for cointegration were performed to ascertain the level of cointegration which suggested a long-run relationship between the saving and investment in Ghana despite potential deviations in the short-run. Savings comprise only one aspect, which sets aside money that you do not spend on emergencies or future purchases with little or no risk [2]. Though different from one investment to another investment [3]
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