The link between household savings rates and GDP: evidence from the Visegrád group

ABSTRACT

During the past two decades, two global events highlighted the importance of household savings to economies and individuals, and their relation to economic activity and growth. First, the Global Financial Crisis of 2008 reminded the world that household savings are essential for economic recovery and sustainable economic development. Second, the recent COVID-19 pandemic showed how vulnerable household savings are to various external shocks. This paper investigates the relationship between household savings rates and real GDP in the four countries of the Visegrád Group, namely the Czech Republic, Hungary, Poland, and Slovakia, for the period 1996–2021. Our empirical analyses indicate short-run Granger causality from real GDP to household savings rates, and from household savings rates to real GDP, in both the Czech Republic and Hungary. Additionally, we also report significant long-run relationships between household savings rates and real GDP, particularly in Hungary .

KEYWORDS:

• Savings
• GDP
• Visegrád group
• cointegration
• vector error correction model

Acknowledgments

The authors thank two anonymous reviewers for helpful comments. This research was supported by J. William Fulbright Commission for Educational Exchange in the Slovak Republic, the Scientific Grant Agency of the Ministry of Education, Science, Research and Sport of Slovakia, and the Slovak Academy of Sciences within project VEGA 1/0646/2023. The content is the sole responsibility of the authors and does not necessarily reflect the official views of the aforementioned entities.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Data availability statement

Data are available from the authors upon request.

Notes

1. The savings rate sharply increased during the first two quarters of 2020. More specifically, it rose by about five percentage points through the first quarter and by about 12%-points through the second quarter (Dossche & Zlatanos, 2020).

2. The household savings rate in the Czech Republic was about 21.1%, while household savings rates in Poland, Hungary, and Slovakia were about 8.8%, 15.1% and 10.9%, respectively (Eurostat, 2021b).

3. See Caudill et al. (2020) for a more extensive discussion.

4. One of the main arguments underpinning the studies of savings rates and GDP states that savings play an important role in increasing GDP (Aghion et al., 2016; Botev et al., 2019). Household savings are also considered to be central to economic development (Sekantsi & Kalebe, 2015; Gross et al., 2020).

5. A few studies analyse the link between savings and GDP in both developed and developing countries at the same time (e.g. Brueckner et al., 2023; Misztal, 2011).

6. They are located in the tables labelled ‘GDP and main aggregates per capita’ (nama_10_pc), and ‘Key indicators’ (nasa_10_ki).

7. Rejection of the null hypothesis occurs when the calculated t-statistic is greater than the critical value.

8. The whole analysis is performed using R software (R Core Team, 2018).

9. The current ageing population is accompanied by mitigation challenges (Kluge et al., 2018; Lyons et al., 2018).