Causal Relationship between Saving, Investment and Economic growth

Introduction

A strong economy also holds strong economic factors. The economic growth affects every parts of the industry and can have the opportunity to dictate the market flows. In the developing countries, most of the initiatives are already done to see if there is an economic progress. Clearly, the aim for the economic sustainability is the dream of the leaders. But in the view of the economists, economic progress can be achieved if the country determines the playing variables in the causal relationship.

Background of the Study and Problem Statement

The investigation of the causal relationship between savings, investment and economic growth in the sub-Saharan countries such as Ghana, Kenya, and Nigeria is the main focus of the paper. The sub-Saharan countries are categorized as the developing countries that set different strategies to achieve their country’s full potential for economic growth (Oladipo, 2009). In the integration of different factors such as foreign and domestic resources gave importance to the idea that their economies, particularly in Nigeria, had the evidence of the causal relationship or causality.

Research Objectives

The research identified the two main objectives that will give rise to the importance of the identification of the causal relationship in the developing countries. First is to establish the role of the savings, investments, and economic growth. And second is to demonstrate the efficiency of the relationship which every developing country in their aims to foster their own growth.

Research Questions

Accordingly, the study prepared essential questions that will serve as the engine of the study.

1. What are the importance of savings and investment in the economic growth?

2. What are the options taken by different industries that can contribute to the economic growth?

3. What are the other factors that emphasize the causal relationship particularly in Nigeria?

Literature Review

The relationship between the first event and the second event which is more similar to the cause and effect sequence is called causality or causal relationship. Mostly, causal relationship happens without the consciousness of the person. In the economic activity such as exporting, there is clear vision of relationship of saving, investment and economic growth (Oladipo, 2009). Trading, in particular, serves as one of the wheels of the economy and exporting became the important ingredient for most of the developing countries. Trading industry opens the opportunity of investment with an aid of the higher level of income and saving which consequently leads to economic growth (Afzal, Rehman, and Rehman, 2009). In the relationship, there is also an indication regarding the responsiveness of the economy in the events of inflation, large budget deficits, foreign markets and investments, and the effectiveness of the performing industries. The causal relationship of the can be examined if there is a relative sustainability or growth in the developing economies (Gokal and Hanif, 2004). In addition, there are also developments in the stock market that usually in form of investment that contributes to the economic growth. When allowing for the stock market to enter the regression along with financial development, a strong causal relationship between stock market development and economic growth is found (Caporale, Howells, and Soliman, 2004).

Methodology

The applied method utilized in the study is the comparative case study method. The application of the method enables the recent study to conduct its own investigation regarding the past literatures and therefore, examine and compare the results of the past case studies to help produce the analysis. Through the comparative case study method, all of the evidences will be revealed especially in the sub-Saharan areas particularly in Nigerian Economy.

Conclusion

There is a growing importance in the direction of the causal relationship of savings, investments, and economic growth in Nigeria. As a developing country, the Nigeria should provide the additional aids to help them achieve the success in developing the country. Therefore, they should continue developing the strategies to fully accommodate the savings and investments in the growth of their economy.

References:

Afzal, M., Rehman, H., & Rehman, J., 2009. Causal Nexus between Economic Growth, Export and External Debt Servicing- The Case of Pakistan. [Online] Available at: http://www.pide.org.pk/PSDE/pdf/32.pdf. [Accessed 09 Feb 2010].

Caporale, G., Howells, P., & Soliman, A., 2004. Stock Market Development and Economic Growth: The Causal Linkage. Journal of economic Development, Vol. 29, No. 1. [Online] Available at: http://www.jed.or.kr/full-text/29-1/02_J665_.PDF. [Accessed 09 Feb 2010].

Gokal, V., & Hanif, S., 2004. Role of Macroeconomic Factors in Growth. Relationship Between Inflation and Economic Growth. [Online] Available at: http://www.reservebank.gov.fj/docs/2004_04_wp.pdf. [Accessed 09 Feb 2010].

Oladipo, O., 2009. Does Saving Really Matter for Growth in Developing Countries? The Case of a Small Open Economy. [Online] Available at: http://economics.ca/2009/papers/0619.pdf. [Accessed 09 Feb 2010].