Domestic savings and economic growth in Ghana

Abstract

This study investigates the relationship between domestic savings and economic growth in Ghana using quarterly time series data from 1983 to 2012. The study adopted the quantitative research design under the positivist philosophy to address the research objectives. Whereas domestic savings was measured by gross domestic savings to GDP ratio, economic growth was measured by real GDP per capita. Employing the Johansen’s Cointegration within the vector autoregressive and vector error correction framework and Granger causality approaches, the results revealed a positive long run relationship between domestic savings and economic growth. The results of the forecast error variance decomposition indicated that the most important variable for economic growth besides its own shock was money supply. The source of least forecast error variance of real GDP per capita is the innovations of consumer price index throughout the short-term, medium-term and long-term horizons. Also, there was unidirectional causality between domestic savings and economic growth. It is therefore recommended that the government should encourage people to save in order to boost investment for increased economic growth.