Does saving really matter for growth? Mexico (1970–2000)

This paper uses the Granger non‐causality test procedure developed by Toda and Yamamoto (1995) and Dolado and Lütkepohl (1996) to analyse the saving‐growth nexus in Mexico. Contrary to the reverse causation between national saving and domestic income found in recent empirical studies, evidence is presented in favour of Solow's model prediction that higher saving leads to higher economic growth. The confirmation of a saving‐growth nexus in this country seems to be related to the inclusion of foreign direct investment (FDI) in the model, as the most relevant component of foreign saving. As this study will try to show, this last variable enhances economic growth and reinforces the connection between the two focus variables in the analysed country.