Causality between Domestic Savings and Economic Growth A Case study of Sudan (1982-2000

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Date
2004
Authors
Mwahib Gasm El Seid Ahmed Mohammed
Journal Title
Journal ISSN
Volume Title
Publisher
University of Khartoum
Abstract
Saving and economic growth are strongly positively correlated across-countries. This positive correlation has generally been interpreted as supporting the traditional theory of growth in which higher saving rates result in either permanent or temporarily economic growth through capital formation. However, a recent, but rapidly growing body of literature has challenged this traditional notion and suggests that this causation runs from economic growth to saving and not the other way around. This new finding is problematic for traditional theory of growth. This study contributes to the same literature. This research seeks to estimate the relationship between domestic saving measured by growth rate of domestic saving (st) and economic growth measured by growth rate of real gross domestic product (gt) in Sudan for the period (1982-1999) to find out which of the above two contrasting approaches to development is supported by Sudanese data. As opposed to the previous studies which have mainly utilized panel-estimation method, the test of causality here carried-out in time-series settings. Unlike past studies this study tests an alternative hypothesis: that higher growth rates of real gross domestic product cause growth rate of domestic saving. The direction of causality is investigated using Ordinary Least Squares (OLS) estimator, and Hisao,s (1971,1981) testing procedure which is a combination of Granger’s (1969)causality test and A kaike,s (1969) final prediction Error (FPE) criterion. The empirical results lend for greater support to the hypothesis that there is two-way causation (feedback effect) between saving and economic growth. That means the two variables are both cause and effect of each other. Policy-makers should give equal importance to policies, which regard higher saving and investment as a consequence of higher economic growth and not its primary cause only
Description
Thesis Submitted in Partial Fulfillment of the Requirement of the M.Sc. Degree (Economics)
Keywords
kala-azar disease Parasitic diseases University of Khartoum Economics
Citation
Mwahib Gasm El Seid Ahmed Mohammed, Causality between Domestic Savings and Economic Growth A Case study of Sudan (1982-2000) .- Khartoum : University of Khartoum, 2004 .- 135p. : illus., 28cm., M.Sc.