An Application of Vector Autoregressive Model on Investments and Savings in Nigeria

Abstract

The saving- investment relationship and its implication for economic growth across borders has been sharplydebated in the literature since the pioneering work of Feldstein and Horioka (1980). In this paper, the debate is extended to the Nigerian economy in Africa using the Vector Autoregressive (VAR) approach and causality tests on the Savings and Investment data obtained from the Central Bank of Nigeria (CBN).The effects of stochastic shocks to investment on savings and to savings on investment are explored and it was observed that savings granger causes investment and investment granger causes savings. Thus, policies should be concentrated towards enhancing the level of investment to bolster savings in the Nation.

Keywords: Domestic saving, domestic investment, equilibrium, unit roots, cointegration, causality.