International Journal of Research in Social Sciences Vol. 8, Issue 12(1), December 2018, ISSN: 2249-2496 Impact Factor: 7.081 Journal Homepage: http://www.ijmra.us, Email: editorijmie@gmail.com Double-Blind Peer Reviewed Refereed Open Access International Journal - Included in the International Serial Directories Indexed & Listed at: Ulrich's Periodicals Directory ©, U.S.A., Open J-Gate as well as in Cabell’s Directories of Publishing Opportunities, U.S.A 193 International Journal of Research in Social Sciences http://www.ijmra.us, Email: editorijmie@gmail.com Gross Domestic Savings And Economic Growth In Ethiopia:- An ARDL Bounds Test Approach Dr. Akshaya Kumar Mohanty* Abstract The interaction between gross domestic savings and economic growth is critically important for the development policy. The wide range of controversies surrounding the direction of causality between savings and economic growth motivated this study. Hence, the objective of this study intends to investigate empirically the relation between gross domestic savings and economic growth in Ethiopia using annual time series data spanning through a period of 42 years (1976 to 2017) obtained from MoFEC and annual reports of NBE. The study employes autoregressive distributed lag (ARDL) approach to co-integration test and the augmented Granger causality test approach developed by Toda and Yamamoto (1995) so as to achieve this objective. After performing robustness checks, ARDL bounds to the co integration test concludes that Gross Domestic Savings and economic growth are co-integrated, and therefore holds a long run relationship which exists between them. Error correction model also identifies a short run relationship. The speed of adjustment has value 0.72 and 0.421 with negative sign, which shows the convergence of saving and Growth model towards long run equilibrium. In addition, the Toda and Yamamoto version of Granger causality test reveals that causality runs from economic growth to gross domestic savings, implying that economic growth precedes and Granger causes saving. Thus, the study rejects the Solow’s hypothesis that saving precedes economic growth, and accept the Keynesian theory that economic growth leads to higher saving. As a result, the study recommends that government and policy makers should focus on more income policies that would accelerate economic growth so as to increase savings. Keywords: Growth , Savings , ARDL Bounds Test , Ethiopia . I. Introduction The rate of economic growth in any economy depends on the level of investment made in different sectors of that economy; and there cannot be any meaningful investment without saving. The slow rate of development in third world countries are usually attributed to the low levels of national saving, It is observed that economies witnessing rapid economic growth such as China, India, Indonesia, Malaysia, Singapore, South Korea and Thailand, etc. also characterized by high domestic saving rates during their developmental phase. Similarly, many countries in sub-Saharan Africa and Latin America typically save at a low rate and experience slow economic growth (Patra et al., 2017). Ethiopia is among the low-income sub-Sahara African countries which needs fast and sustainable economic growth. However, low domestic saving rate is consistently cited as one of the most serious constraints to sustainable economic growth. Currently, Ethiopia has adopted policy reforms of the five year Growth and Transformation Plan (GTP) for the period between 2015/16 to 2019/20 to sustain rapid and broad-based economic growth and eventually end poverty. Accordingly, a sound understanding of the interaction between savings and economic growth in a country’s economy is strategically important for the achievement of macroeconomic policy to sustainable economic growth and hence higher standard of living of citizens. *Associate Professor Of Economics, Department Of Economics, Ethiopian Civil Service University, Post Box No: 5648, Addis Ababa, Ethiopia