EXPLORING THE LINKAGE BETWEEN DOMESTIC SAVINGS, INVESTMENT AND ECONOMIC GROWTH: EVIDENCE FROM THE EASTERN EUROPEAN ECONOMIES

Abstract

Beyond the theoretical aspects, the interplay between savings, investment and economic growth has vital importance in designing the proper economic policies for the long-run developmental objectives particularly for developing countries. Accordingly, this present paper aims to investigate the dynamic linkage between domestic savings, investment and economic growth for the Eastern European economies by incorporating the annual panel data spanning over 1995-2021. By revealing the existence of long-run relationship, the paper derives that savings and investment are the key factors of economic growth, which is vindicated by the recently pioneered model so called cross-sectional autoregressive distributed lag (CS-ARDL) method. Furthermore, the results of panel causality tests confirm the validity of causal nexus running from savings and investment to economic growth. In addition, the paper concludes with some policy recommendations that are drawn upon the findings.