Abstract
The savings-development nexus is a topical issue in current development literature.No
study has yet explored this relationship in nineteenth-century ‘SouthAfrican’ colonies.
An historical analysis of the development of the savings’ trends in South Africa may
assist in understanding development trends in the twentieth century. Apart from
general descriptions of the nature of economic activity in the Cape Colony very
little is known about the role of savings and financial sector development in the
growing colonial economy. This paper describes and surveys the nature of financial
markets in the Cape Colony between 1850 and 1909 and seeks to explain the
relationship between savings and economic growth. Savings is defined in the broad
sense of monetary and non-monetary savings and would be assumed to be a proxy
for financial development in the Cape Colony. This paper contributes to the
economic history literature on the colonial past of South Africa by using recently
compiled data on the GDP (Greyling & Verhoef 2015) as well as monetary savings
and non-monetary savings (livestock) to test whether the general view that ‘financial
development is robustly growth promoting’ can be substantiated in the last half of
the nineteenth-century Cape Colony. The Johansen vector error correction model
technique is applied to determine the relationship between savings and economic
growth. It is found that despite the expectations in the literature that financial
deepening contributes to economic growth, the Cape Colony did not display such
causal relationship in the period under review.