Savings and economic growth in South Africa: A multivariate analysis

Abstract

Growth theories highlight the importance of domestic savings for Economic growth. The savings and growth literature points generally to a positive growth effect of domestic savings. For a country like South Africa, where the level of domestic saving is low, the question of the role of savings in economic growth becomes critical. An understanding of the contribution of the different forms of savings in an economy to its economic growth is important, especially to be able to make the proper policy addresses. This paper applies cointegration analysis within a multivariate framework to establish the effect of household, government and corporate savings on economic growth in South Africa. The result indicates that corporate saving has a significant positive relationship to growth in both the long and short run, while household and government saving have no significant impact on growth. There is need for policies that increase the level of domestic savings and also a need to address government policies that impact on both public and household savings rate.