Examining Long Run Relationship between Household Debt and Household Savings in South Africa – An Error Correction Model and Granger Causality
R Ncwadi, Kholiswa Malindini
on Google Scholar
13 July, 2016
17 August, 2016
26 September, 2016
25 October, 2016
Savings is vital to maintain and expand an economy’s capital structure
and economic growth. Saving is an important component of economic growth
model in that investments are created from savings. Investment allows
an opportunity to improve technology and thereby increasing levels of
productivity. Increasing levels of productivity lead to increased real
wages. The end result of increasing real wage is improvement of the
welfare of the nation. Nevertheless, savings have been declining over
the years, placing the South African economic development agenda in
jeopardy. Since 1984, savings have deteriorated significantly, reaching a
mere 15.3 percent of GDP in 2009 (SARB, 2010). The decline in savings
at the beginning of the 1980s coincided with increased access to credit
by households. Alongside these developments net wealth of the households
increased relative to their disposable income (South African Reserve
Bank (SARB), 2002). Mutyaba (2013) states that savings declined
considerably during the last decade in South Africa. In 2006, for
example, savings turned negative. In contrast, during the same year the
debt increased to its highest level ever Mutyaba (2013). Clearly
voluntary savings are becoming even more unaffordable by a number of
households in South Africa, mainly amongst the low earners (Chiroro,
2010).This study uses Engle & Granger cointegration approach and
granger causality to examine the link between debt and savings in South
This paper makes a contribution towards the household savings discourse
in South Africa. The use of Engle and Granger cointegration approach to
examine the link between household savings and household debt in this
paper is one of the very few studies in this area in South Africa. Keywords:
Household savings, Household debt, Cointegration, error correction, Granger causality, Causal relationship.
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This study received no specific financial support.
The authors declare that they have no competing interests.
All authors contributed equally to the conception and design of the study.
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