Saving, Investment and Growth in India: Evidence from Cointegration and Causality Tests

Abstract

This study examines the long-run equilibrium relationship between real domestic saving, investment and growth and tests the null hypothesis of non-causality between these variables in India during 1951-2015. The cointegration tests confirmed the existence of a long-run equilibrium relationship between domestic savings, investment and growth for India. The estimated long-run elasticities suggested a stronger elasticity of saving in explaining the investment in India than growth. The ARDL short-run estimates were consistent with long-run estimates. The causality test suggested the absence of causal relationship between growth and investment, and between growth and saving. However, a unidirectional causality from saving to investment was confirmed suggesting that domestic savings play a very important role in supporting national investments.