Examining the Long-Run Relationship between Savings, Investment, and Economic Growth in Ethiopia: Evidence from ARDL Bounds Testing Approach

Abstract

Abstract In this study, the relationship between savings, investment, and economic growth in Ethiopia between 1976 and 2018 was investigated. Stationary tests were conducted and it was found that all series became stationary after the first differences. When investment was considered the dependent variable, ARDL bounds testing results suggested that there was a long-term relationship. The coefficient of the error correction term revealed that 54.1% of any short-term disequilibrium would be adjusted annually. Causality results showed a short-term causal flow from economic growth to savings, a short-term and long-term causal flow from economic growth to investment, and short-run causality from investment to economic growth. The study discovered that savings had a significant effect on investment in the long run, while economic growth had a positive but insignificant effect. Therefore, this study concluded that savings and investments have an association with real GDP, and administrative support is needed to promote them to accelerate much-needed economic growth.