The domestic savings and economic growth relationship in China

Abstract

PurposeThe purpose of this paper is to examine the relationship between the growth of domestic savings and economic growth in China.Design/methodology/approachCointegration and causality tests cover the country as a whole and four of selected representative provinces for the period of 1955‐2004.FindingsChina's economic growth is found to have a long‐running relationship with household savings and enterprise savings. Bilateral causality exists between the domestic savings growth and the economic growth in the short‐run. In the long‐run, a unidirectional causality exists running from the domestic savings growth to the economic growth. However, the provinces show a different statistical relationship between these two variables.Research limitations/implicationsThe data are not up to date and are limited to the annual frequency.Practical implicationsIt would be useful to the policy makers to understand the dynamics involved and where necessary, to make adjustments to the prevailing and future economic policies in order to achieve the rapid and desired economic development and sustainable economic growth.Originality/valueThe paper assesses the cointegration and causality relationship between the growth of domestic savings and economic growth in China.