Publication Details

Wilson, E. J. & Verma, R. (2004). Savings, investment, foreign inflows and economic growth of the Indian economy 1950-2002. In J. Sheen (Eds.), Proceedings of the Australian Conference of Economists, 2004 (pp. 2-35). Australia: Economic Society of Australia.


There is a large research literature on the roles of domestic savings and investment in promoting long run economic growth. This paper attempts to identiy the major interdependencies between savings, investment, foreign capital flows and real output for India since independence. An endogenous growth model of an open economy, with government, is adapted to specify the complicated theoretical interrelationships between sectors of a growing economy. The time series of real household, private corporate and public savings; private and public investment; foreign capital inflows and GDP are tested for stationary under structural change. Empirical estimation of the possible long run and short run relationships are conducted using Johansen's FIML cointegration techniques, which are appropriate for simultaneous systems. Granger causality techniques are then conducted to identify significant links between the sectors. The estimates indicate that there are complicated relationships between the variables in aggregate and at the sectoral level. The evidence clearly shows that it is not only domestic savings which are driving the Indian economy. Private and public investment and foreign capital flows are as important. However their significant interdependencies do not lead to a strong collective influence on real GDP. These findings have important implications for the formulation of appropriate policies relating to budget deficits, households

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Australian Conference of Economists