Abstract:

This paper utilizes cointegration and the vector error-correction model(VECM) to explore the causal relationship between economic growth and growth rate of domestic savings for Turkey over the period of 1960-2004. Specifically, three analyses were undertaken. First, the time series properties of economic growth and domestic savings were ascertained with the help of the augmented Dickey-Fuller unit root procedure. Second, the long-run relationship between economic growth and growth rate of domectic savings was examined in the context of the Johansen and Juselius (1990) framework. Finally, a Granger-causality test was undertaken to determine the direction of causality between economic growth and growth rate of domestic savings. The results indicate one order of integration(I(1)) for each of the series. The results of the cointegration tests suggest that there is a lon-run relationship between economic growth and growth rate of savings. The results from Granger-causality tests indicate that contrary to the conventional wisdom, economic growth causes growth rate of savings for Turkey

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