Title : Revisiting Savings-Investment Correlation in Bangladesh: Does it Matter for Capital Outflows and Economic Growth?

Authors : Md. Thasinul Abedin, Md. Sharif Hossain, Md. Rabiul Karim

Abstract : With the increase in financial liberalization globally, the association between international capital mobility and saving-investment correlation is gaining more importance. This paper re-investigates savings and investment correlation in Bangladesh after liberation war by using time series data from 1976-2015 and Feldstein and Horioka (1980) hypothesis. Absence of cointegration relationship between savings and investment directs that limited effective savings policies exist to increase domestic investment and economic growth is not supported by domestic investment via domestic savings in the long-run. The small correlation coefficient in the short-run (0.12) suggests that a bulk share of domestic savings is moving towards abroad. Both traditional Granger causality testing approach and Toda and Yamamoto (1995), and Dolado and Lutkepohl (1996) causality testing approaches suggest that there exists short-run bidirectional causality between savings and investment. The small correlation coefficient in short-run in a small economy like Bangladesh has been found by many empirical studies.

Journal : Journal of Business and Economic Perspectives ยท Volume : XLV Year : December 2018 Issue : 2
Pages : 38-61 City : Edition : Editors :
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