The Causal Relation Between Savings and Economic Growth in Turkey

There is plentiful evidence in the literature suggesting a positive causality relationship between savings and national income. Nevertheless, the views on the direction of the causality relationship between savings and economic growth are rather controversial. The Solow model-based view supports to the hypothesis of "income-driven growth" and hence asserts that the causality relation operates from national savings to income. Savings play a major role in providing national capacity for investment and thus lead to the higher economic growth. On the other hand, the Keynesian model-based view, by advocating "income-led savings growth", claims that causality operates from national income to savings. Namely, savings, as the non-consumed part of the income, are affected by changes in the level of income rather than determining the level of income. Therefore, there is no opportunity to influence the economic growth rate by implementing the policies aiming to increase the rate of savings. This study aims to investigate the validity of the views related to the Solow and Keynesian-based models for the Turkish economy by using Johansen cointegration analysis and Granger causality test. Thus, empirical results also show whether policies that encourage savings would be effective in order to accelerate economic growth in Turkey.