The Relationship between Gross Domestic Savings and Economic Growth in Ethiopia

It is the fact that saving is one of the determinants of economic growth; especially, in developing countries. Transferring some portion of current income to the future (saving) can be considered as the source of capital stock in which it has great role in creating new investments, surging employment, rising disposable income thereby boosting production in the economy. In aggregate, these will result in economic growth. So, the main objective of this study is to examine the relationship between gross domestic saving and economic growth in Ethiopia. It also investigates whether the direction of causality runs from gross domestic saving to economic growth or vice versa. To achieve this objective, first it is necessary to test whether the variables are stationary or not. Granger causality tests were conducted using time series annual data ranged from 1974 to 2015, and the empirical result suggests that the causality runs from lnRGDS to lnRGDP in the long run in Ethiopia. However, there is no short run causality running from gross domestic saving to growth rate of economy in Ethiopia. On the other hand, there is long run causality running from growth rate of economy to gross domestic saving