The Egg or the Chick first; saving or GDP Growth: Case for Kenya

  • Abraham K Waithima Daystar University

Abstract

This paper adopts the Hendry Model with a two-step method to model a saving function for Kenya. The Model uses a complex dynamic specification that includes lagged dependent and the independent variables. The paper finds that a 1% increase in GDP growth rate leads to a 0.5% increase in private saving in the long run which is consistent with the life cycle hypothesis. A striking result in the saving function is the positive effect that population growth rate seems to have on private savings which puts into question the notion of a smaller population as a mobilization tool for private saving. Even though consumption seems to have a significant negative effect on private savings in the short run, in the long run, it does not seem to have any significant effect. Causality tests support a uni-directional causality from per capita GDP to private saving and a bi-directional causality between Gross Domestic Saving and Investment.

Author Biography

Abraham K Waithima, Daystar University
Abraham K. Waithima is a Lecturer at Daystar University in Nairobi, Kenya. He is currently pursuing a PhD in Economics at University of Capetown, South Africa.
Published
2008-09-18
Section
Articles and Research papers