What is the Impact of Savings on Growth? The Case of a Small Open Economy (Albania)

Abstract

Does economic growth come as a result of increasing the saving rate of a country? Savings and Economic Growth are closely related to each other and this is why this relationship has been subject of studies for various economists through time. The aim of this study is to indicate the causal relationship that exists between savings and economic growth in Albania between the years 1992 and 2012 (after the fall of communism, during the long transition period of the country) by implementing the Johansen Co-integration Test. According to the empirical results is revealed that savings and economic growth are co-integrated, therefore showing the existence of a stable long-run equilibrium relationship. Moreover results of the study suggest that a positive relationship between savings and economic growth and the complementary role of FDI in growth. This implies that the government must pay special attention toward FDI policies in order to positively affect Economic Growth of the country.