SAVINGS AND ECONOMIC GROWTH CAUSALITY IN NIGERIA

Abstract

This study examines savings and economic growth causality in Nigeria. The specific objectives are to investigate the long-run two-way cause and effect relationship between gross domestic savings, gross capital formation as proxy for investment and per capita income as proxy for economic growth in Nigeria.  The data covered the period of 1981 to 2019. Unit root test for stationarity and Johansen cointegration test to ascertain long run equilibrium relationship were conducted;   the study employed correlation matrix to examine the strength of the relationship and vector error correction  granger causality/block erogeneity wald  test with Schwarz information criterion to evaluate the direction of the relationship among the variables. The results of the study revealed that the variable in the model became stationary at their first difference, the appropriate lag for the variables is seven (7) and the cointegration result indicates that there exists a long run equilibrium relationship among the variables in the model. The correlation matrix shows that there is strong positive relationship between gross domestic savings and economic growth and also strong positive correlation between gross domestic savings and gross capital formation which served as proxy for investment. Although, the correlation between gross capital formation and per capita income is positive but it is moderate and Granger causality result revealed that, there is bidirectional relationship between the variables of interest in this study. The study thus, recommends that, an optimal stabilization policy would guarantee a dynamic long run relation between savings, investment and economic growth in Nigeria.