SAVINGS AND ECONOMIC GROWTH IN PAKISTAN: AN ISSUE OF CAUSALITY

The objective of the paper is to investigate causal relationship betweensavings and output in pakistan by using quarterly data for the period of 1973:1 to2003:4. the co-integration and the vector error correction techniques are used toexplore causal relationship between savings and economic growth. the resultssuggest bi-directional or mutual long run relationship between savings and outputlevel. however, there is unidirectional long run causality from public savings tooutput (gnp and gdp), and private savings to gross national product (gnp). theresults also indicate that the speed of adjustment in case of savings is strongerthan that of level of output. the overall long run results of the study favour thecapital fundamentalist’s point of view that savings precede the level of output incase of pakistan. the short run mutual relationship exists between gross domesticproduct (gdp) and domestic savings. the results also indicate unidirectionalshort run causality from gross national product (gnp) to national and domesticsavings; and from gross domestic product (gdp) to public savings. the short runcausality runs only from national savings to gross domestic product (gdp). sooverall short run results favour keynesian point of view that savings depend uponlevel of output.