The Relationship Between Domestic Saving and Economic Growth and Convergence Hypothesis : Case Study of Thailand

Sammanfattning: The fact that saving is one of the main factors to economic growth is unquestionable. Accumulated saving can be consider as the sources of capital stock to which play a crucial role in creating investment, production, and employment. And all these activities eventually enhance the economic growth. Therefore the main objective of this paper, ―The relationship between domestic saving and economic growth and convergence hypothesis: case study of Thailand‖, was to investigate the causality relationship between the domestic saving and economic growth of Thailand. This paper will analyze whether the direction of causality go from domestic saving to economic growth, or vice versa. Granger causality test were conducted by using time series annual data from 1960 to 2010, and the empirical result suggests that the direct of causality go from economic growth to domestic saving only. Aiming to grow its economy, Thailand had had development plans which used both saving and direct investment to stimulate economy. This paper examine whether the convergence hypothesis does hold in Thailand. This part would check whether or not Thailand is in the process of convergence, catching up, lagging behind, loose catching up, loose lagging behind or divergence over time compared with other developed countries. This test was conducted in pairwise between Thailand-Singapore, Thailand-United States, Thailand-United Kingdom, deployed data from 1970 to 2010, and the Augmented Dickey–Fuller (ADF) Test. The regression results demonstrate that convergence hypothesis does not hold in Thailand. Finally, the result of Granger Causality report that economic growth rate does matter lead to growth rate of domestic savings in Thailand only. Thus, in order to learn the effect of gross domestic saving per capita growth rate can help narrow the different of GDP between two countries concerned, this paper will examine the correlation of two variables, deployed the OSL methods to investigate the correlation between gross domestic saving growth rate and the different of GDP per capita between Thailand and Singapore. This test also examine whether saving does help support convergence hypothesis for Thailand or not. The test results shows that domestic saving growth rate does not help narrowing the range of different of income of Thailand and Singapore which mean that domestic saving growth rate does not support the convergence hypothesis in Thailand.