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THE RELATIONSHIP BETWEEN SAVING AND GROWTH IN SOUTH AFRICA: A TIME SERIES ANALYSIS

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Abstract

This paper uses the Johansen VECM estimation technique to examine the directions of association between saving and growth in South Africa over the period 1946-1992. We examine the aggregate private saving rate and its interaction with investment and growth. The paper finds that the private saving rate has a direct, as well as, an indirect effect on growth. The indirect effect is through the private investment rate. In turn, we find that growth has a positive effect on the private saving rate. The extent of this effect is determined by liquidity constraints. Thus, we have a virtuous cycle, as growth enhances saving, which in turn further enhances growth. Copyright 2005 Economic Society of South Africa.

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