International Journal of Research and Innovation in Social Science (IJRISS) |Volume VI, Issue IX, September 2022|ISSN 2454-6186
Role of Domestic Savings and Investment in Economic Growth for Developing Economies of East Africa
Amery S Mureka
Department of Economics, Finance and Accounting; Kibabii University, Kenya
Abstract: The objective of this research was to find out the role of gross domestic savings and investments on the economic growth of EAC region. The study used the explanatory research design. Annual panel data obtained from World Bank development database for Kenya, Uganda, Tanzania, Rwanda and Burundi from 2005 to 2021 were used. Levin, Lin and Chu (2002) methodology was used to test for stationarity and stabilize data. Pooled OLS regression model was used to estimate the parameters and conduct the inference. The results showed that Gross domestic investment was significant with a p-value of 0.012 at 0.05 significance level while domestic savings had insignificant effect on the GDP with a p-value of 0.069 at 0.05 level of significance. The resesearch concluded that Gross domestic investment has a significant role on economic growth while domestic savings is insignificant in determining growth for the EAC region.
Keywords: Gross Domestic Investment, Domestic Savings, Economic Growth, Panel Data Estimation Technique, Explanatory Research design
I. INTRODUCTION
Economic growth refers to the increase in a country’s productivity which results in increase of the national income over a given period of years. This is shown by a continued increase in income of a country compared to previous years (Reserve Bank of Australia, 2022). An increase in gross domestic product (GDP) is used as a measure of economic growth and is usually expressed in terms of percentages from one year to another. Economic growth rates of East Africa countries are not high enough to achieve middle-income status by 2030 which is the ambition of governments in this region (Mureka, 2022).
Economic theory argues that domestic saving is a vital variable for economic growth of any economy because it enhances capital formation and increases public and private investments (Nwachukwu and Odigie, 2009). Domestic Savings entails the part of income that is not consumed but set aside for investment purposes (Prinsloo, 2000). For a country to achieve economic growth and sustained development, a strong saving performance has to be attained (Adewuyi, 2007). Empirical literature show that differences in the economic performance between developed, developing and undeveloped countries is brought about by disparities in their rates of domestic saving and investment.