International Journal of Business and Social Science

ISSN 2219-1933 (Print), 2219-6021 (Online) DOI: 10.30845/ijbss


The Temporal Relationship between Saving and Investment: Evidence from Advanced EU Countries
Olugbenga A. Onafowara, Oluwole Owoye, Florence Huart

This paper examines the relationship between saving and investment in eight advanced economies of the European Union. We test for cointegration, causality and dynamic effects of shocks to saving and investment, using the Autoregressive Distributed Lag (ARDL) bounds testing approach to cointegration, an unrestricted error correction model (UECM) of the ARDL, and a VAR analysis of forecast error variance decompositions. We find evidence of cointegration between saving and investment in six countries based on the UECM of the ARDL. In addition, we have evidence of long-run causality running from saving to investment in the Netherlands and the United Kingdom, a reverse causality in Denmark, Germany, and Luxembourg, bidirectional causality in Belgium, and neutrality in France and Italy.

Full Text: PDF