The Savings-Growth Nexus in Malaysia: Evidence from Nonparametric Analysis

This study re-examines the savings-growth nexus in Malaysia by using the nonparametric methodology. Using quarterly data from March 1991 to September 2006, the result of the Bierens (1997) nonparametric cointegration test shows that savings and economic growth are cointegrated. Moreover, the multiple rank F-test (Holmes and Hutton, 1990) indicates a bilateral causality between savings and economic growth. In this study, Dynamic OLS is adopted and the estimated result implies that savings and economic growth are positively related in the long run. This result highlights that policies which encourage savings should be implemented as the causality test shows that savings is an engine to economic growth through its impact on capital formation. Thus, high savings carry the meaning of ‘boosting economy’, rather than ‘freezing economy’.