Vol. 3, Issue 2 (2017)
Balanced growth hypothesis: Evidence from Canada
Author(s): Adamu Jibrilla, Sani Alhaji Saidu
Abstract: This study examined the balanced growth hypothesis in Canada by employing the unit root test as well as the cointegration test. The methodology employed in this study is Johansen cointegration methodology with the VAR models being estimated as well. Time series data have been used for this analysis which were collected on variables such as consumption, investment, GDP, population, export and import. The study found no empirical evidence supporting the balanced-growth hypothesis in Canada. One of the fundamental hypotheses of the neoclassical growth literature is the balanced growth hypothesis, which envisages that output, consumption, and investment grow at the same rate. This entails that the ratios of consumption to output and investment to output must be unit root free. Empirically, it implies that consumption and investment must be cointegrated with output. The general findings of this study suggest that the data for Canada is inconsistent with the theoretical implications of the balanced growth hypothesis. Although one of the great ratios was stationary, there was no enough evidence in support of the balanced growth in Canada.