This paper empirically examines the relationship among savings, investment and growth rate using cointegration and Error Correction Model (ECM) approach. Specifically, savings and investment models are estimated. The series are integrated of order two, i.e., [I(2)]. Long-run relationship among variables is established using Johansen maximum likelihood methods. The econometric analysis shows that investment-GDP ratio lagged by one year, real growth rate of GDP lagged by one year, gross domestic savings lagged by one year and cost of capital lagged by two years are significant determinants of investment. Similarly, real growth rate of GDP, gross domestic investment-GDP ratio lagged by one year and economic liberalization are significant determinants of savings. A robust relationship among savings, investment and growth is identified. The study suggests that given the prevalence of low saving rate and invariably low investment rate, there is the need to adopt a proactive measure that will enhance savings and investment capacity in Nigeria, which in turn, will impact growth significantly. This can be achieved through a policy framework that will ensure an investor-friendly environment and develop human capacity and technology.

One of the complex and unsettled debates in economics is the explanation of the process of economic growth. The creation of wealth is critical for positive change in the welfare of people in the world. The disarray in growth economics is not only a topic of analytical interest, but also of practical importance. One of the controversies in growth economics is the relative role of capital accumulation and productivity growth as main driving forces in the determination of the rate of growth of output and national income. Wah and Hooi (2010) observed that the controversy over the role of capital accumulation in the growth process is due to the time span of the analysis (short/medium run versus long run, and growth transitions versus steady states). In this connection, the empirical importance of various determinants will differ depending on what we want to achieve: long-run growth, say, growth over half a century or a century is different from growth dynamics over one or two decades. New evidence is showing that growth fluctuations at frequencies of a decade or so are very important for most countries, except probably high per capita income economies.

In fact, there is now increasing evidence that growth is an irregular and volatile process in which the same country may experience over a period of several decades various shifts in growth regimes that can entail growth take-off and booms, stagnation and/or growth collapses. Investment serves as a vehicle to create productive capacities and probably generate knowledge spillovers and new technologies. At the same time, ensuring an adequate level of national savings is important as foreign savings can be volatile and lead to ‘sudden stops’ that force costly macroeconomic adjustment and growth crises. The equality between savings and investment is a core relationship that guarantees macroeconomic balance and the relation between the two variables (savings and investment) involves analytically important and fundamental policy issues of great relevance.

Capital accumulation or physical investment is the proximate source of economic growth (Aylit, 2007). Advocates of financial liberalization, McKinnon (1973) and Shaw (1973), have long argued for financial liberalization on the basis that saving is complementary to investment in the development process. High level of domestic savings will accelerate the rate of investment, enhance productivity and economic growth. A country’s level of savings or its saving rates relative to other countries can be used as a yardstick for measuring its growth prospects (Agba and Adam, 2006). It is often held that capital accumulation is the necessary and sufficient condition for growth and is almost synonymous to saving and smoothing consumption (Deaton and Paxcon, 2000).

Monetary Economics Journal, Mexican Inflation Using Wavelets, Wavelet Multiresolution Analysis, Monetary Policy, Financial System, Core Inflation Series, Fourier Transform, Maximal Overlap Discrete Wavelet Transform, Disinflation Process, Services Inflation Series.