Economic theories speculate that savings generate investment which in turn creates employment opportunities that give birth to demand, prices, profit and more production expansion. This expansion if properly utilized will lead to economic growth of a country. This paper attempts to investigate the causal relationship between domestic savings, domestic investment and economic growth in Nigeria. The study uses annual time series data from 1970-2015. Augmented Dickey-Fuller unit root test, Johansen cointegration, fully modified least squares; Vector error correction model (VECM) and Granger causality test based on Toda-Yamamoto procedure were employed in this study. The results shows that all variables are integrated of order one and hence cointegrated. The study finds domestic investment as having positive and significant impact on economic growth in Nigeria in the long-run. The economic impacts of domestic saving and investment on economic growth in the short-run are found to be low, permanent and long lasting. The VECM model has identified a sizeable speed of adjustment by 68.78% for correcting disequilibrium annually for achieving long term equilibrium steady state position. The Granger causality test result shows statistical evidence of bidirectional causality between domestic investment and economic growth and bidirectional causality between domestic savings and domestic investment in the short-run. However, there is no short-run Granger causality between domestic savings and economic growth. The study recommends that promoting investment for higher economic growth is a better policy strategy for Nigeria. Enhancing investment growth through savings is also a policy option suitable for short-run to long-run as evidenced by this study.

Author Name: David Adugh Kuhe & Japheth Terande Torruam

URL: View PDF

Keywords: Savings, Investment, Economic Growth, Unit Root, Error Correction Model, Granger Causality, Nigeria.

ISSN: 2581-5059

EISSN: 2581-5059

EOI/DOI: 10.46382/MJBAS.2020.4206

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