Savings and growth nexus in the context of Southern African Customs Union countries

Abstract

Orientation: The primary goal of Southern African Customs Union (SACU) is to promote economic development through regional coordination. Consequently, SACU members have set economic growth targets through various medium- and long-term policies. Research purpose: The article investigates the savings-growth nexus among SACU countries. Motivation for the study: This study is motivated by low economic growth among SACU countries and the gap in the saving-growth literature. Specifically, previous studies assumed linear relationship, thereby ignoring the fact that savings may be related to economic growth in a nonlinear fashion. Research approach/design and method: The study utilised several panel estimation techniques with data over 1990–2021 for the SACU countries. Main findings: Firstly, there is a strong evidence of long run relationship between saving and economic growth in SACU countries. Secondly, domestic saving exhibits a positive and statistically significant effect on economic growth both in the short-and long-term. Thirdly, there is evidence of non-linear relationship between domestic saving and economic growth. Lastly, it is shown that 16% threshold level of domestic savings to gross domestic product (GDP) ratio is consistent with 6% GDP growth target aspired by SACU union. Practical/managerial implications: The findings of this article suggest that domestic saving is a prerequisite for economic growth provided the funds are channelled to productive investments. Consequently, there is a need to design appropriate policies that can help to promote and mobilise savings. Contribution/value-add: This article contributes to the ongoing debate on saving-growth in the context of developing countries. In addition, it addressed the linearity assumption of the previous studies by incorporating nonlinear assumption.

Keywords

• savings
• economic growth
• southern african customs union countries
• fully modified ordinary least square
• dynamic ordinary least square
• pool mean group.