CAUSAL RELATIONSHIP BETWEEN SAVINGS AND ECONOMIC GROWTH IN INDIA

Sachin N. Mehta

Doctoral Research Scholar,

Department Of Economics, VNSGU, Surat – 395007, Gujarat, India.

E-mail : sachindrb@gmail.com

Gaurang D. Rami

Associate Professor

Department Of Economics, VNSGU, Surat – 395007, Gujarat, India.

E-mail : grami@rediffmail.com

Abstract: 

This paper examines empirically causal relationship between real gross domestic product (GDP) and real gross domestic saving (GDS) for India. The controversy surrounding the direction of causality between saving and economic growth is motivated in this study. The researcher has employed the Granger-causality techniques to analyze the causal relationship between saving and economic growth in India during the period 1951- 2011. The granger causality test reveals that there is no evidence of causality in any direction between per capita GDP and per capital saving. Thus, Solow’s hypothesis that saving precedes economic growth, and Keynesian theory that economic growth leads to higher saving have to be rejected. The interaction between GDP and Savings which exists in theory does not exist in practice.

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