Assessment of the Relationships Between Economic Growth and Savings

Abstract

Purpose. The purpose of this study is to develop the evaluation characteristics of the relationship between household savings decisions and macroeconomic growth in order to form a base of identification parameters of effective household financial behavior. Design/methodology/approach. In the article, the authors used the literature review method to justify the importance of implementing the problem of the relationship between savings and economic growth. Based on the trends analysis the authors identified the main features of households’ saving changes during last 17 years, their relationships with changes in GDP, national income and total income of households. The use of correlation-regression analysis made it possible to assess the sensitivity of the impact on the savings of their main elements. Empirical results have been obtained based on official sources of national statistical data and Wold Bank data. Findings. Households play a major role in the economic growth of a nation. Their financial behavior and savings habits can determine the overall economic performance of a country. This paper discusses the elements of household savings, how it affects economic growth, and why it has been on a downtrend lately. It also explores the potential solutions to address this issue and how households can be encouraged to save more for their future. The financial behavior of households in Ukraine has seen significant changes over the past 17 years, and the period of change in priorities between current and deferred consumption is the financial crisis of 2008. Since 2009, seriousness towards savings has been significantly lost. The saving behavior of households in Ukraine is in dissonance with the saving behavior of enterprises and state structures. Households’ savings decisions depend to a small extent on both the absolute size of their income and GDP, as well as their rates of change. Practical implications. The materials presented in the article may be useful for researchers interested in economic growth modeling. Also, the results of this research are of interest to policymakers for creating effective measures of macroeconomic stimulation. Originality/value. In the article, the authors have identified the main regularities of the behavior of households regarding the formation of savings. The changes in the GDP and household income do have not a significant impact on the saving rates both in the short-term and long-term. The changes in the volume of household savings are mainly determined by the dynamics of the volume of net household loans. Households increase indebtedness when the business cycle intensifies (GDP and national income growth). Households in Ukraine are characterized by a high priority of current consumption over deferred (savings).