THE NEXUS AMONG SAVING, INFLATION AND ECONOMIC GROWTH INETHIOPIA: TIME SERIES ANALYSIS

Abstract

At national level the achievement of sustainable rapid economic growth along with increasing amount of savings with optimal inflation is the central policy objective of most countries. The objectives of this study is to investigate the nexus amongsaving, inflation and economic growth in Ethiopia for the period 1980 to 2017.Time series econometrics model were used to analyze the data. To achieve this objective co-integrated VAR approach was employed. The estimated models enable to understand the long run and short run nexus of the variables. The long run test show that gross national saving rate and inflation rate exert positive and significant impact on economic growth; economic growth rate exert positive and significant impact on gross national saving rate; economic growth rate exert positive and significant impact on inflation rate while the impact of gross national saving rate is positive and insignificant.Economic growth rate exert positive and significant impact on gross national saving rate while inflation rate exert positive and insignificant impact on gross national saving rate. The short run test results reveals that the impact of gross national saving rate on economic growth rate is positive and significant where as inflation rate exert positive and insignificant impact on economic growth rate of the country; economic growth exert positive and insignificant impact on gross national saving rateWhere as inflation rate exert negative and insignificant impact on gross national saving rate. The granger causality test shows that economic growth granger causes gross national saving rate; it does not granger causes inflation rate. Gross national saving rate does not granger cause economic growth and Inflation rate. Inflation rate granger causes economic growth rate and national saving rate. From a policy point of view, the government of Ethiopia should target appropriate optimal level of inflation rate to encourage national saving and economic growth. Moreover to increase gross national saving rate, it should encourages private businesses, increase tax base and domestic saving mobilization.