Investigating the Relationship between Aggregate Savings and Investment in Namibia: A Causality Analysis

Abstract

The discussion concerning the link between savings and investment in the literature is quite extensive. Most of the past studies concerning this relationship are cross-sectional in nature. The obvious difficulty with such studies is the homogeneity assumption that is usually made across the countries under investigation. Therefore, country specific studies are necessary to shed light on the savings-investment nexus. For Namibia, such studies are very scarce. In light of this, the study tried to fill this gap in some ways by attempting to investigate the causal relationship between savings and investment in Namibia using relevant econometric techniques. The evidence arising from the study suggests that, savings and investment are not co-integrated. In other words, there is no reason to suspect either a long-run or equilibrium relationship between these two variables. This could also be interpreted to imply the existence of high capital mobility. Furthermore, a unidirectional causal relationship between savings and investment in Namibia running from savings to investment was observed. In light of these results, some policy measures were put forward.

Keywords: Savings, Investment, Co-integration, Causality, Namibia, Time series macroeconomic data.