Inter-Relationship between Economic Growth, Savings and Inflation in Asia

Abstract

The present study examines the inter-relationship between economic growth, savings rate and inflation for south-east and south Asia in a simultaneous equation framework using two stage least squares with panel data. The relationship between savings rate and growth has been found to be bi-directional and positive. Inflation has a highly significant negative effect on growth but positive effect on savings rate. Inflation is not affected by growth but is largely determined by its past values and savings rate is not affected by interest rate. These findings for countries in Asia with widely divergent values of aggregates are very relevant for development policies and strategies.

Keywords: Growth, Savings, Inflation, Asia, Simultaneity, Fixed-Effect

JEL Classification: C33, E21, E31, E60, O57