A study of the bilateral causality between GDP growth rate (g) and gross savings rate (s) showed the results given in Table 17.7.59 For comparison, the results for the United States are also presented in the table. By and large, the results presented in Table 17.7 show that for most East Asian countries the causality runs from the GDP growth rate to the gross savings rate. By contrast, for the United States for the period 1950-1988 up to lag 3, causality ran in both directions, but for lags 4 and 5, the causality ran from the GDP growth rate to savings rate but not the other way round.
To conclude our discussion of Granger causality, keep in mind that the question we are examining is whether statistically one can detect the direction of causality when temporally there is a lead-lag relationship between two variables. If causality is established, it suggests that one can use a variable to better predict the other variable than simply the past history of that other variable. In the case of the East Asian economies, it seems that we can better predict the gross savings rate by considering the lagged values of the GDP growth rate than merely the lagged values of the gross savings rate.
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