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Testing Causality and Cointegration Between Saving and Investment in Bangladesh

Published in Economics (Volume 4, Issue 6)
Received: 13 August 2015     Accepted: 24 September 2015     Published: 18 December 2015
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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), 2015. Published by Science Publishing Group

Keywords

Saving, Investment, Cointegration, Causality, Bangladesh

References
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[2] Ang, J. B., (2007). Are saving and investment cointegrated? The Case of Malaysia (1965–2003). Applied Economics, 39, 2167–2174.
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[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.
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[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.
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[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.
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[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.
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Cite This Article
  • 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

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    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

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    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

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  • @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}
    }
    

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  • 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  - 

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Author Information
  • Department of Economics, Bangabandhu Sheikh Mujibur Rahman Science and Technology University, Gopalganj, Bangladesh

  • Department of Economics, University of Rajshahi, Rajshahi, Bangladesh

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