Testing Causality and Cointegration Between Saving and Investment in Bangladesh

Zubaidur Rahman; Md. Elias Hossain

doi:doi:10.11648/j.eco.20150406.15

| Peer-Reviewed

Testing Causality and Cointegration Between Saving and Investment in Bangladesh

Zubaidur Rahman, Md. Elias Hossain

Published in Economics (Volume 4, Issue 6)

Received: 13 August 2015 Accepted: 24 September 2015 Published: 18 December 2015

Views: Downloads:

Download PDF

Share This Article

Twitter
Linked In
Facebook

Abstract

Interaction between saving and investment has been a major concern to the economists and there exists substantial debate over the nature of long run relationship between them. Thus, the main objective of this paper is to examine the dynamic linkages between saving and investment in Bangladesh using annual time series data covering the period from 1980 to 2014. The stationarity of the data is examined by using the Augmented Dickey-Fuller (ADF) and Phillips-Perron (PP) unit root tests. This paper applied the Johansen-Juselius cointegration test to examine the long run relationship between saving and investment. In order to show the direction of causal relationship between saving and investment, the widely used Granger causality test has been used. The unit root tests revealed that both saving and investment are non-stationary at level forms and they become stationary after taking their first difference. The Johansen-Juselius cointegration analysis suggests that, there exists a long run relationship between saving and investment as it is confirmed by both the Trace and Maximum Eigen-value test statistics. Results found from the Granger causality test suggests that unidirectional causality running from saving to investment existed in Bangladesh over the sample period for a lag length of two periods. Based on the results, pursuance of policy measures towards mobilizing domestic saving is recommended.

Published in	Economics (Volume 4, Issue 6)
DOI	10.11648/j.eco.20150406.15
Page(s)	125-131
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2024. Published by Science Publishing Group

Keywords

Saving, Investment, Cointegration, Causality, Bangladesh

References

[1]	Afzal, M., (2007). Savings and Investment in Developing Countries: Granger Causality test. Philippine Review of Economics, 44, No.2.
[2]	Ang, J. B., (2007). Are saving and investment cointegrated? The Case of Malaysia (1965–2003). Applied Economics, 39, 2167–2174.
[3]	Bangladesh Bureau of Statistics (BBS), 1998. Statistical Yearbook of Bangladesh Dhaka: Statistics Division, Ministry of Planning. Government of the Peoples Republic of Bangladesh.
[4]	Bangladesh Bureau of Statistics (BBS), 2001. Statistical Yearbook of Bangladesh 2001. Dhaka: Statistics Division, Ministry of Planning. Government of the Peoples Republic of Bangladesh.
[5]	Bangladesh Bureau of Statistics (BBS), 2004. Statistical Yearbook of Bangladesh 2004. Dhaka: Statistics Division, Ministry of Planning. Government of the Peoples Republic of Bangladesh.
[6]	Bangladesh Bureau of Statistics (BBS), 2006. Statistical Yearbook of Bangladesh 2004. Dhaka: Statistics Division, Ministry of Planning. Government of the Peoples Republic of Bangladesh.
[7]	Bangladesh Bureau of Statistics (BBS), 2007. Statistical Yearbook of Bangladesh 2004. Dhaka: Statistics Division, Ministry of Planning. Government of the Peoples Republic of Bangladesh.
[8]	Bangladesh Bureau of Statistics (BBS), 2009. Statistical Yearbook of Bangladesh 2009. Dhaka: Statistics Division, Ministry of Planning. Government of the Peoples Republic of Bangladesh.
[9]	Bangladesh Bureau of Statistics (BBS), 2006. Yearbook of Agricultural Statistics of Bangladesh 2006. Dhaka: Statistics Division, Ministry of Planning. Government of the Peoples Republic of Bangladesh.
[10]	Bangladesh Bureau of Statistics (BBS), 2010. Yearbook of Agricultural Statistics of Bangladesh 2010. Dhaka: Statistics Division, Ministry of Planning. Government of the Peoples Republic of Bangladesh.
[11]	Chakrabarty, A., (2006). The Saving Investment relationship revisited: New Evidence from Multivariate Heterogenous Cointegrating Analyses. Journal of Comparative Economics, 34, 402-419.
[12]	Cooray, A. and D. Sinha (2005). The Feldstein-Horioka Model Re-Visited for African Countries. UTAS, School of Economics Discussion Paper, 2005-09.
[13]	Cyrille, S. M., (2010). Saving-Investment Correlation and Capital Mobility in Sub-Saharan African Countries: A Reappraisal through Inward and Outward Capital Flows’ Correlation. International Journal of Economics and Finance, 2, No. 2.
[14]	De Vita, G. and Abbott, A., (2002). Are saving and investment cointegrated? An ARDL bounds testing approach. Economics Letters, 77(2), pp. 293-299.
[15]	Engle, R.F. and Granger, C.W.J., (1987). Co-integration and error-correction: Representation, estimation and testing. Econometrica, 55(2), pp. 987-1008.
[16]	Esso, L.J. and Keho., (2010). The savings- Investment Relationship: Cointegration and causality Evidence from Uemoa Countries. International Journal of Economics and Finance, 174-181.
[17]	Feldstein, M. and Horioka, C., (1980). Domestic saving and international capital flows. Economic Journal, 90, 314-329.
[18]	Feldstein, M. (1983). Domestic Saving and International Capital Movements in the long run and the short run. European Economic Review, 21, 129-151.
[19]	Government of Bangladesh (2015). Bangladesh Economic Review 2015, Ministry of Finance, Dhaka.
[20]	Granger, C. W. J., (1986). Developments in the Study of Cointegrated Economic Variables. Oxford Bulletin, 3, 213-228.
[21]	Granger, C.W.J. and Newbold, P. (1974) Spurious Regression in Econometrics. Journal of Econometrics, 2, pp. 111-120.
[22]	Gujrati, N. D., (2004). Basic Econometrics, 4^th Edition, McGraw-Hill/Irwin.
[23]	Johanson, S., (1988). The statistical analysis of cointegration vectors. Journal of. Economic Dynamics and Control 12, pp.231-254.
[24]	Johansen, S. and Juselius, K., (1990), Maximum likelihood estimation and inference on cointegration with applications to the demand for money. Oxford Bull. Econ. Stat. 52, 169-210.
[25]	Johansen, S. (1995), “Likelihood-based Inference in Cointegrated Vector Autoregressive Models”, Oxford: Oxford University Press.
[26]	Miller, S.M., (1988). Are saving and investment cointegrated? Economics Letters, 27, 31-34.
[27]	Nasiru, N. and Usman, H. M., (2013). The Relationship between Domestic Savings and Investment: The Feldstein-Horioka Test Using Nigerian Data. CBN Journal of Applied Statistics, 4(1), 75-88.
[28]	Narayan, P. K. (2005). The Relationship Between Saving and Investment for Japan, Japan and the World Economy, 17, 293–309.
[29]	Onafowara, O. A., Owoye, O. and Huart, F., (2011). The Temporal Relationship between Saving and Investment: Evidence from Advanced EU Countries” International Journal of business and Social Science, 2, No. 2.
[30]	Phillips, P.C.B., and Perron P., (1988). Time Series Regression with a Unit Root, Biometrica, 75, 335-346.
[31]	Phillips, P. C. B and Hansen, B. E. (1990) Statistical inference in instrumental variables regression with I(1) processes, Review of Economic Studies, 57, 99-125.
[32]	Ramakrishna G. and Rao, S.V., (2012). The Long run Relationship between Savings and Investment in Ethiopia: a Cointegration and ECM Approach. Developing country Studies, 2(4).
[33]	Vos, R. (1988) Saving, Investment and foreign capital flows: Have capital markets become more integrated? Journal of Development Studies, 24,310-334.
[34]	Wet, D. A. and Van Eyden (2005). Capital Mobility in Sub Sub-Saharan Africa: A panel Data Approach. South African Journal of Economics, 73, 1-22
[35]	Wahid, A. N. M., Salahuddin, M. and Noman, A. M., (2004). Saving Investment Correlation in South Asia- A Panel Approach. European Journal of Economics, Finance and Administrative Sciences, 11 (2008), 1-7.
[36]	World Bank. 2014. World Development Indicators 2007. Washington, DC: World Bank. http://devdata.worldbank.org/wdi2007/contents/index2htm. (accessed 20 July, 2015)

Cite This Article

Plain Text BibTeX RIS

APA Style

Zubaidur Rahman, Md. Elias Hossain. (2015). Testing Causality and Cointegration Between Saving and Investment in Bangladesh. Economics, 4(6), 125-131. https://doi.org/10.11648/j.eco.20150406.15

Copy | Download

ACS Style

Zubaidur Rahman; Md. Elias Hossain. Testing Causality and Cointegration Between Saving and Investment in Bangladesh. Economics. 2015, 4(6), 125-131. doi: 10.11648/j.eco.20150406.15

Copy | Download

AMA Style

Zubaidur Rahman, Md. Elias Hossain. Testing Causality and Cointegration Between Saving and Investment in Bangladesh. Economics. 2015;4(6):125-131. doi: 10.11648/j.eco.20150406.15

Copy | Download

@article{10.11648/j.eco.20150406.15,
  author = {Zubaidur Rahman and Md. Elias Hossain},
  title = {Testing Causality and Cointegration Between Saving and Investment in Bangladesh},
  journal = {Economics},
  volume = {4},
  number = {6},
  pages = {125-131},
  doi = {10.11648/j.eco.20150406.15},
  url = {https://doi.org/10.11648/j.eco.20150406.15},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.eco.20150406.15},
  abstract = {Interaction between saving and investment has been a major concern to the economists and there exists substantial debate over the nature of long run relationship between them. Thus, the main objective of this paper is to examine the dynamic linkages between saving and investment in Bangladesh using annual time series data covering the period from 1980 to 2014. The stationarity of the data is examined by using the Augmented Dickey-Fuller (ADF) and Phillips-Perron (PP) unit root tests. This paper applied the Johansen-Juselius cointegration test to examine the long run relationship between saving and investment. In order to show the direction of causal relationship between saving and investment, the widely used Granger causality test has been used. The unit root tests revealed that both saving and investment are non-stationary at level forms and they become stationary after taking their first difference. The Johansen-Juselius cointegration analysis suggests that, there exists a long run relationship between saving and investment as it is confirmed by both the Trace and Maximum Eigen-value test statistics. Results found from the Granger causality test suggests that unidirectional causality running from saving to investment existed in Bangladesh over the sample period for a lag length of two periods. Based on the results, pursuance of policy measures towards mobilizing domestic saving is recommended.},
 year = {2015}
}

Copy | Download

TY - JOUR
T1 - Testing Causality and Cointegration Between Saving and Investment in Bangladesh
AU - Zubaidur Rahman
AU - Md. Elias Hossain
Y1 - 2015/12/18
PY - 2015
N1 - https://doi.org/10.11648/j.eco.20150406.15
DO - 10.11648/j.eco.20150406.15
T2 - Economics
JF - Economics
JO - Economics
SP - 125
EP - 131
PB - Science Publishing Group
SN - 2376-6603
UR - https://doi.org/10.11648/j.eco.20150406.15
AB - Interaction between saving and investment has been a major concern to the economists and there exists substantial debate over the nature of long run relationship between them. Thus, the main objective of this paper is to examine the dynamic linkages between saving and investment in Bangladesh using annual time series data covering the period from 1980 to 2014. The stationarity of the data is examined by using the Augmented Dickey-Fuller (ADF) and Phillips-Perron (PP) unit root tests. This paper applied the Johansen-Juselius cointegration test to examine the long run relationship between saving and investment. In order to show the direction of causal relationship between saving and investment, the widely used Granger causality test has been used. The unit root tests revealed that both saving and investment are non-stationary at level forms and they become stationary after taking their first difference. The Johansen-Juselius cointegration analysis suggests that, there exists a long run relationship between saving and investment as it is confirmed by both the Trace and Maximum Eigen-value test statistics. Results found from the Granger causality test suggests that unidirectional causality running from saving to investment existed in Bangladesh over the sample period for a lag length of two periods. Based on the results, pursuance of policy measures towards mobilizing domestic saving is recommended.
VL - 4
IS - 6
ER -

Copy | Download

Author Information

Zubaidur Rahman

Department of Economics, Bangabandhu Sheikh Mujibur Rahman Science and Technology University, Gopalganj, Bangladesh
Md. Elias Hossain

Department of Economics, University of Rajshahi, Rajshahi, Bangladesh

Download PDF

Sections

Plain Text BibTeX RIS

APA Style

Zubaidur Rahman, Md. Elias Hossain. (2015). Testing Causality and Cointegration Between Saving and Investment in Bangladesh. Economics, 4(6), 125-131. https://doi.org/10.11648/j.eco.20150406.15

Copy | Download

ACS Style

Zubaidur Rahman; Md. Elias Hossain. Testing Causality and Cointegration Between Saving and Investment in Bangladesh. Economics. 2015, 4(6), 125-131. doi: 10.11648/j.eco.20150406.15

Copy | Download

AMA Style

Zubaidur Rahman, Md. Elias Hossain. Testing Causality and Cointegration Between Saving and Investment in Bangladesh. Economics. 2015;4(6):125-131. doi: 10.11648/j.eco.20150406.15

Copy | Download

@article{10.11648/j.eco.20150406.15,
  author = {Zubaidur Rahman and Md. Elias Hossain},
  title = {Testing Causality and Cointegration Between Saving and Investment in Bangladesh},
  journal = {Economics},
  volume = {4},
  number = {6},
  pages = {125-131},
  doi = {10.11648/j.eco.20150406.15},
  url = {https://doi.org/10.11648/j.eco.20150406.15},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.eco.20150406.15},
  abstract = {Interaction between saving and investment has been a major concern to the economists and there exists substantial debate over the nature of long run relationship between them. Thus, the main objective of this paper is to examine the dynamic linkages between saving and investment in Bangladesh using annual time series data covering the period from 1980 to 2014. The stationarity of the data is examined by using the Augmented Dickey-Fuller (ADF) and Phillips-Perron (PP) unit root tests. This paper applied the Johansen-Juselius cointegration test to examine the long run relationship between saving and investment. In order to show the direction of causal relationship between saving and investment, the widely used Granger causality test has been used. The unit root tests revealed that both saving and investment are non-stationary at level forms and they become stationary after taking their first difference. The Johansen-Juselius cointegration analysis suggests that, there exists a long run relationship between saving and investment as it is confirmed by both the Trace and Maximum Eigen-value test statistics. Results found from the Granger causality test suggests that unidirectional causality running from saving to investment existed in Bangladesh over the sample period for a lag length of two periods. Based on the results, pursuance of policy measures towards mobilizing domestic saving is recommended.},
 year = {2015}
}

Copy | Download