Savings, Investment, Productivity and Economic Growth of Australia 1861–1990: Some Explorations

Policy makers' concerns over sub-optimal savings rates in Australia mistakenly concentrate on symptoms rather than causes of low rates of growth in investment and productivity. A growth model of a small open economy is used to demonstrate possible interdependencies of these variables which are tested using cointegration and long-run Granger causality techniques for the periods 1861–1900 and 1949–90. As expected, no direct long-run relationship is found between savings and investment. However the interactions between investment and productivity growth are found to be complex and evolving, whilst savings appear to be determined residually in the growth process.