The Nexus Between Domestic Saving and Economic Growth

Abstract

This study attempts to examine the nexus between domestic saving and economic growth in Nigeria from 1981 to 2018. The study employed annual time series data from the Central Bank of Nigeria’s statistical bulletin. The variables understudy (domestic saving, government capital formation, inflation, interest rate and economic growth) were subjected to stationarity test using Augmented Dickey Fuller test (ADF). Johansen co-integration test was employed to test for long-run equilibrium relationship among the variables. While Vector error correction model was employed for the analyses of short run dynamic relationship among the variables. The ADF test revealed that all the variables are stationary at first difference. The Johansen co-integration test reveals long-run equilibrium relationship among the variables. Also, the long-run co-integrating vector result is similar to the dynamic short-run vector error correction model result. Findings reveal that domestic saving and inflation have negative relationship with economic growth while interest rate and government capital formation have positive relationship with economic growth. The error correction term is -0.010370. The study recommended that government should encourage production of goods and services because increase in the output level can reduce inflation to the required minimum level. Government should embark on suitable interest rate policies that will augment the economy. Government capital formation should be encouraged as it translates to investments that are capable of boosting the economy.