Saving and Growth Nexus in Pakistan: Innovation Accounting Technique

Mohammad Shahbaz and Rana Ejaz Ali Khan

Abstract

The paper investigates the relationship between economic 
growth and domestic savings. We used ARDL Bounds Testing 
and Johansen Cointegration approaches for long-run 
association, and Innovation Accounting Technique along with 
Toda and Yamamoto (1995) for causal relationship using 
annual time series data for the period 1971 to 2007. Ng-Perron 
De-trended Test is used to determine the order of integration 
among data series. Results reveal that there exists a long-run 
relationship between economic growth and domestic savings. 
Causal results through innovation accounting technique assert 
that there is one-way causality, running from economic growth 
to domestic savings while very weak from opposite side. 
Results by Toda and Yamamoto’s technique also confirm that 
economic growth leads domestic savings in Pakistan.