The validity of the assertion that high saving rates are associated with persistent high economic growth rates has become questionable after the onset of 1997/1998 Asian financial and economic crises. This paper aims to examine the factors influencing the saving rate of Malaysia as well as to reestimate the savings function in order to answer the question whether high saving rates are associated with Malaysia's high rate of economic growth using a recently developed Bound testing approach proposed by Pesaran et al. (2001). The sample period runs from 1974-2004. The Autoregressive Distributed Lag (ARDL) model indicates that in the long-run, per capita GDP and per capita GDP growth rate have a positive impact on saving rates, while foreign saving and dependency ratio have a negative influence on saving. However, the interest rate is found to be insignificant on Malaysia's saving rate.

Savings play a crucial role in the growth and development process. This is well documented in the development economics literature. Savings can be defined as the excess resources available to the economic agents. When the current consumption is appropriately allocated, it is beneficial to the developing economies. Most countries are more likely to finance the bulk of their investment out of national savings, rather than utilizing international capital flows (Obstfeld and Rogoff, 2000). In other words, the most important factor for a country's investment is indeed its own savings. The 1997 Asian financial crisis has recognized the importance of the mobilization of domestic savings for economic growth in developing countries, so that these countries could be less reliant on foreign capital. Although there are abundant studies on savings for groups of countries and regions (see, for instance, Edwards, 1996; Dayal-Gulati and Thimann, 1997; and Metin-Ozcan and Ozcan, 2000), the focus has rarely been on a specific country (Ortmeyer, 1985).

As a high savings country, Malaysia has the potential to engender economic growth. Prior to the crises, Malaysia had been exhibiting an impressive savings rate. Malaysian economies were exhibiting high and increasing rates of savings, especially since the late 1980s. The high level of savings rate supported the Malaysian domestic investment need and in turn reduced their reliance on foreign savings. Since the late 1980s, Malaysia's gross national savings rate maintained at least 30% of GDP. The high savings rate portrayed a well-designed saving opportunity and incentives provided by the policymaker. Across the world, the Malaysian economy is considered to be one with high savings rate. Meanwhile, Malaysia was one of the fastest growing economies from the late 1980s until the first half of 1990s. The average growth rate between 1970 and 2004 was approximately 7%. This made us believe that the high rates of saving in the Malaysian economy contributed to their economic growth.

Time Series Analysis, Autoregressive Distributed Lag model, ARDL, Economics literature, Economic agents, International capital flows, Gross national savings, Economic growth, Domestic investments, Asian financial crisis, Economic agents.