Testing Causality and Cointegration Between Saving and Investment in Bangladesh

Zubaidur Rahman; Md. Elias Hossain

doi:doi:10.11648/j.eco.20150406.15

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Testing Causality and Cointegration Between Saving and Investment in Bangladesh

Zubaidur Rahman, Md. Elias Hossain

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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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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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

Zubaidur Rahman

Department of Economics, Bangabandhu Sheikh Mujibur Rahman Science and Technology University, Gopalganj, Bangladesh
Md. Elias Hossain

Department of Economics, University of Rajshahi, Rajshahi, Bangladesh

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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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