The savings and economic growth are closely related with each other. The relationship between the savings at the domestic level and economic growth are studied in Economics by various economists a number of times.There have been numerous studies depending on the data collected from various income classes of the economy such as low-income group, high-income group, low middle income group and upper middle income group.
The economic growth of a country can be referred to as the economy’s capacity to increase the productivity of services and goods in comparison with previous time period. The economic growth can be calculated both in real terms and in nominal terms. While comparing the economic growth between two different countries, the GDP (Gross Domestic Product) or GNP (Gross National Product) per capita are compared.
In these two measures the population difference among the countries are also taken into account. Economic growth can also be defined as the increase in value of the goods that are produced by the economy.
With the economic growth, an economy can invariably experience a growth in the personal income and per capita consumption expenditure. The impact of economic growth of a particular country can be very well felt in the increase in the disposable income of an individual.
According to the theory of marginal propensity to save, the savings increases with the increase in the income. Hence, following this theory it can be easily understood that with an economic growth, the amount of savings also increases.
Often the governments of the countries offer a number of saving and investment schemes that are tax exempt in order to promote the practice of saving in the country. By investing in such saving schemes, the individuals can save a considerable amount of tax. The governments in return invest thus earned capital in various development projects of the country that help to build a better economy. This also helps for the growth of economy.