In promoting and sustaining economic growth, many countries have recognized the

critical role of saving, which serves as the foundation for investment. Investment, in turn,
acts as the driving force behind economic expansion by stabilizing economic activity and
supporting capital formation. The relationship between saving and investment is
reciprocal (Alzghoul, Alsheikh, & Yamin, 2023). On one hand, there is a financial link,
where savings provide the necessary funding for investment to stimulate economic
growth. On the other hand, there is a productivity connection, as savings are converted
into real capital assets such as machinery, buildings, and other productive goods
(Adelakun, 2015; O. Al-kasasbeh, Alzghoul, & Alhanatleh, 2022). The effectiveness of
an investment strategy and its success in achieving objectives largely depend on the
presence of a robust savings policy within this interconnected framework.
Economic theories offer differing perspectives on the nature of the relationship between
savings and investment. Classical economists, drawing on Adam Smith's ideas, assert that
all savings accumulated annually are invested within the same period (Nasiru & Usman,
2013). They view savings as another form of expenditure, specifically on the purchase of
investment goods, implying that every saved dollar is eventually converted into an
investment. Consequently, savings do not reduce aggregate demand because the entirety
of national income is ultimately spent. From the classical viewpoint, saving is essential
for fostering economic growth (O. M. Al-Kasasbeh, 2022). Given its constant
relationship with investment, classical economists argue that savings and investment are
fundamental to capital formation. In their framework, savings represent the sole source of
funds available for lending, emphasizing that savings are crucial for investment and that
the two are closely linked. This perspective rules out the possibility of financing
investment by drawing on idle cash reserves.
According to examine the long-term and short-term connections between savings and
investment in Iran's economy using the Vector Error Correction Model and ARDL test
(Tehranchian & Behravesh, 2011). Their findings revealed a long-term equilibrium
relationship, with the impact of savings on investment being more significant in the long
run than in the short term. The error correction term suggested that it would take over two
years to adjust to an investment shock. As a policy recommendation, the study advocated
for developing infrastructure to encourage foreign investment.
The applied ordinary least squares regression to explore the influence of savings and
investment on Nigeria's economic growth between 1981 and 2014 (Nwanne, 2016). The
findings showed that changes in gross domestic savings negatively impacted Nigeria's
economic growth, while changes in gross domestic investment had a significant positive
effect on the country’s development.
The investigated savings and investment behavior across 22 OECD countries using a
time-varying parameter model with Kalman filtering (Khan, 2017). The study found that
the time-varying savings retention coefficient had been declining since the mid-1970s in
most of the countries. This drop suggests that capital mobility has been increasing as
global financial markets become more integrated. The study aimed to track the evolving
relationship between savings and investment through a state-space model.
In their analysis of savings and investment trends in South Africa, noted that while both
savings and investment rates showed an upward trend from 1960 to the 1970s, the
savings rate had sharply declined by 2015 (Hungwe & Odhiambo, 2019). Investment
rates remained inconsistent and low compared to the period between 1964 and 1984. To
attract more foreign direct investment, they recommended policies to increase the cost of
capital and returns on investment.
In personal life and the global economy, it is an indispensable factor, contributing to
building a solid financial foundation, economic stability and promoting sustainable
development. Savings not only help protect individuals and families from risks but also
play an important role in accumulating investment capital, thereby promoting economic
growth. Savings help create a reserve fund for emergencies or unexpected situations,
helping individuals and families cope with events such as illness, job loss, or other urgent
events. According to a survey, nearly 40% of Americans are unable to pay for a $400
emergency without having to borrow money or sell assets (Özgöde, 2022). This shows
the importance of saving in minimizing financial stress when facing unexpected
situations. Having a stable savings account not only helps individuals reduce anxiety but
also ensures the ability to achieve long-term financial goals such as buying a house,
paying for college, or retiring.
The savings are an important foundation for individuals to convert cash into real assets,
helping to increase asset value and generate passive income. For example, when savings
are large enough, individuals can invest in channels such as stocks, real estate or
businesses, making money "work" and generate profits. According to the New York
Stock Exchange (NYSE), the average annual return rate of the US stock market ranges
from 7-10%. This means that if a person invests $100,000 in the stock market, after 10
years, that investment can grow to $194,000 with an average return of 7%.
Furthermore, savings contribute to the accumulation of investment capital for the
economy. For example, in developing economies, investment in areas such as
infrastructure, education and health can help increase labor productivity and promote
economic growth. In China, the national savings rate has been consistently high, at
around 45% of GDP, for many years. Thanks to strong savings and investment, China has
become one of the largest economies in the world, with an average annual growth rate of
6-7% over the past two decades.
Movever, savings help reduce financial pressure, especially in unexpected situations.
With a reserve fund, individuals do not need to borrow or use high-interest credit cards to
deal with unexpected expenses. In Vietnam, consumer loan interest rates can be up to 20-
25%/year, while savings interest rates are only 5-7%/year (according to data from the
State Bank of Vietnam in 2023. Without savings, having to borrow at high interest rates
will increase the financial burden and debt risk, seriously affecting the ability to manage
personal finances in the long term.
Saving also helps prevent financial risks from economic fluctuations. During the global
financial crisis in 2008, people with a solid savings fund were able to overcome
difficulties better, while those without savings faced unemployment or income decline
without financial support. Thus, the saving and investing require high financial discipline,
helping individuals control spending more effectively and with a plan. When setting
specific savings goals, individuals tend to carefully consider the daily expenses and cut
back on unnecessary expenses, thereby improving financial management. Research from
the American Psychological Association (APA) shows that people who have a financial
plan and savings and investment goals tend to feel more satisfied and have less financial
anxiety than those who do not have a specific plan.
In analysis of the long-term relationship between savings and investment in Ethiopia,
used Johansen's cointegration method (Ramakrishna & Rao, 2012). Their results showed
no causal relationship between savings and investment in the long run. Investment in
Ethiopia heavily relies on foreign aid, and the country struggles to generate enough
domestic savings to meet its investment needs, making it vulnerable to external
dependencies and shocks.
The role of savings and investment is extremely important for both individuals and the
economy as a whole. Investment not only increases the value of personal assets but also
acts as a major driver of economic growth, job creation and increased labor productivity.
Investment is a major driver of economic development. When individuals, businesses or
governments invest in areas such as infrastructure, technology and manufacturing, it
creates new job opportunities, increases labor productivity and boosts consumption. For
example, countries with high investment rates such as China and India have maintained
strong GDP growth rates over the past decades. According to the World Bank, China has
maintained an investment rate of about 40-45% of GDP for many years, contributing
greatly to its average GDP growth of 6-7% annually.
In addition, government investment in infrastructure such as roads, bridges, transport
systems and energy also facilitates business activities and enhances national
competitiveness. For example, strong investment in infrastructure has helped countries
such as Singapore and South Korea develop from poor countries into leading advanced
and dynamic economies in the world.
Investment not only contributes to creating assets but is also a key factor in creating jobs.
When businesses expand production or the government invests in public projects, the
demand for labor increases, creating many new job opportunities. For example,
investment in large infrastructure projects in India such as the Delhi-Mumbai Industrial
Corridor Project not only improves economic connectivity between regions but also
creates millions of jobs during the construction and operation of the project.
Creating more jobs also helps increase workers' income, thereby boosting consumption,
contributing to economic growth. According to the International Labor Organization
(ILO), $1 million invested in public infrastructure projects can create 5,000 to 7,000 jobs
in developing economies.
Investing in technology and research and development (R&D) is an important factor in
improving labor productivity and promoting innovation. Businesses can invest in
automation technology, artificial intelligence, or advanced manufacturing processes to
improve work efficiency, reduce costs, and increase competitiveness. Developed
countries such as the United States and Japan have spent a large part of their GDP on
R&D. This helps these economies maintain their leadership in technology and
manufacturing innovation.
Specifically, investing in 4.0 technology such as artificial intelligence and autonomous
robots has helped Tesla, one of the world's largest electric car manufacturers, reduce
production costs and improve product quality. This not only helps increase the company's
profits but also promotes the development of the global electric car industry.
Therefore, both savings and investment play an important role in ensuring personal
finances and promoting economic growth. Savings help individuals accumulate capital,
protect their finances against risks, and prepare for long-term needs such as retirement or
buying a house. Meanwhile, investment is a way to increase the value of assets, generate
passive income, and promote economic growth by expanding production, creating jobs,
and improving productivity. Both factors support each other, savings provide capital for
investment, and investment helps savings grow into more valuable assets.
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