Saving investment relationship with economic growth during financial crisis in Nigeria

ABSTRACT: The Global economic meltdown had called for a new model of managing and controlling of the banks and other financial institutions globally, after claiming thousands of jobs and over 120 banks across the world. This study aims to investigate the causal relationship between saving rates of Nigeria and real GDP growth especially over the period of 1980-2012 that includes the recent financial crisis. It is also the aim of the researcher to investigate the relationship between investment rate with real GDP growth during same period. Unlike previous studies, this study implements Johansen co-integration Estimation as well as Granger Causality analysis. In this analysis, the hypothesis of existence of any long-run equilibrium relationship between savings - investment function is tested by using Johansen co-integration method for Nigerian economy during economic crisis. The short-run dynamics are also captured from the vector error correction model. The estimates of the Johansen co-integration model suggest that there is a long run relationship between savings and investment. This result is consistent with a number of previous studies that found saving and investment to be co-integrated in the long run. Granger causality test result draws a conclusion that there is a unidirectional causal relationship from investment towards savings in Nigeria, where savings turns into consumption especially for imported commodities. Keywords: Savings, Investment, Gross Domestic Product (GDP). …………………………………………………………………………………………………………………………………………………………………………………………………………