Abstract

Kenya’s growth target was set to be sustained at 10% from the year 2012 to 2030 .This growth was to be achieved through savings mobilization from 15.6% in 2006 to 30% in 2030. However, the Country’s growth is currently characterized by rising GDP and falling savings which raises the question as to whether there exists any perceptible relationship between the two. On this basis, the study sought to determine the causality between gross national income (GNI) and gross domestic savings (GDS) in Kenya. The study was anchored on Life Cycle Hypothesis and adopted correlation research design. Unit root tests were conducted using ADF and an automatic selection of Schwartz info criterion with a maximum lag of 7. Vector error correction mechanism was used to characterize the joint dynamic behavior of the variables. Granger causality test was used to show the causality linkage between income and savings. The study utilized World Bank Time series data since 1980 to 2013 and revealed that GNI granger causes GDS at p = 0.0343, meaning that savings emanated from the incomes. VAR indicated a negative significant error correction term, suggesting existence of a long run causality tending from GNI to GDS (B = -1.341668; p = 0.0000). It was concluded that a significant long run relationship existed between income and savings. Thus, more savings to be mobilized through income generation to ensure economic growth.