The Impact of Savings on Economic Growth in an Open Economy

It is often argued that policies that support national savings are critical to economic growth of countries. It is believed that the level of savings in any country should be of major concern to stakeholders. This study uses a Generalized Least Squares (GLS) panel regression technique to examine the impact of savings on economic growth. The study further examines the effect both openness and level of development have on the impact of savings on economic growth with the aid of interaction terms. The study finds that savings have both direct and indirect impact on economic growth. The indirect effect occurs through the impact of investments in human and physical capital on economic growth. The study also finds that both higher capital mobility (financial openness) and higher levels of development lower the impact of national savings on economic growth. Keywords: Economic growth, Savings, Open economy, Capital mobility, Development.