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Correlation Between Domestic Saving and Investment in India

In: Other Topics

Submitted By ks9290
Words 4482
Pages 18

Soni Kshamank
MSc. (Hons) Economics, 4th year, Birla Institute of Science and Technology and Science, Goa,

Bhala Shailesh N.
MSc. (Hons) Economics, 4th year, Birla Institute of Science and Technology and Science, Goa,

Goel Mridula
Associate Prof. and Head of Department Of Economics, Birla Institute of Science and
Technology and Science, Goa, India


The subject of correlation between savings and investment has been of great interest since the last thirty years. The Feldstein-Horioka puzzle, which is one of the six major puzzles in economics, compares the liquid short term capital mobility and its compatibility with high investment-saving correlation in OECD economies in the long run. Economists often claim that higher savings contribute to increased investment and GDP growth in a country via the multiplier effect, as is indicated by higher GDP growth rate in India and China. This paper studies the dynamics of saving-investment correlation in India using the annual data from
1952-53 to 2006-07 by splitting it in two periods: pre-liberalization and post-liberalization.
Hence it analyses the degree of capital mobility in India post-liberalization and compares it with the pre-liberalization period.
Keywords: India, Savings, Investment, Regression coefficient, Regression
JEL Classification Code: C32, E20, E21, E22, O16, O53



The study of dynamic relation between savings and investment has received considerable attention in recent years especially in emerging economies like India. Savings and investment have been considered as two critical macro-economic variables with microeconomic foundations for achieving…...

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