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The Chinese Saving Puzzle and the Life-Cycle Hypothesis

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Author Info
Franco Modigliani
Shi Larry Cao

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Abstract

China's per capita income ranks below 100th in the world. Its saving rate, however, has been one of the highest worldwide in recent decades. In this paper, we attempt to explain the seeming paradox within the framework of the Life-Cycle Hypothesis developed by Franco Modigliani. The key LCH variables are income and population growth. Our results based on data we put together from official sources show that income growth has been the dominant factor behind the dramatic increase in China's saving rate, as predicted by the LCH. Demographic structure and inflation also had significant impact on the fluctuations of the saving rate.

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Publisher Info
Article provided by American Economic Association in its journal Journal of Economic Literature.

Volume (Year): 42 (2004)
Issue (Month): 1 (March)
Pages: 145-170
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Handle: RePEc:aea:jeclit:v:42:y:2004:i:1:p:145-170

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  2. Jahangir Aziz, 2008. "Deconstructing China’s and India’s Growth: The Role of Financial Policies," Working Papers id:1714, esocialsciences.com. [Downloadable!]
  3. Antoine Bouveret & Sana Mestiri & Henri Sterdyniak, 2006. "The renminbi equilibrium exchange rate: an agnostic view," Documents de Travail de l'OFCE 2006-13, Observatoire Francais des Conjonctures Economiques (OFCE). [Downloadable!]
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  5. Philip R. Lane & Sergio L. Schmukler, 2006. "The international financial integration of China and India," Proceedings, Federal Reserve Bank of San Francisco, issue Jun. [Downloadable!]
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  6. Rod Tyers, 2008. "Competition Policy, Corporate Saving And China'S Current Account Surplus," CAMA Working Papers 2008-21, Australian National University, Centre for Applied Macroeconomic Analysis. [Downloadable!]
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  7. Rafael Gómez & Pablo Hernández de Cos, 2006. "The importance of being mature: the effect of demographic maturation on global per-capita income," Banco de España Occasional Papers 0604, Banco de España. [Downloadable!]
  8. Li Cui & Jahangir Aziz, 2007. "Explaining China's Low Consumption: The Neglected Role of Household Income," IMF Working Papers 07/181, International Monetary Fund. [Downloadable!]
  9. Xin Meng, 2007. "Wealth Accumulation and Distribution in Urban China," IZA Discussion Papers 2553, Institute for the Study of Labor (IZA). [Downloadable!]
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  10. Jean-Paul Fitoussi & Francesco Saraceno, 2008. "The Intergenerational Content of Social Spending: Health Care and Sustainable Growth in China," Documents de Travail de l'OFCE 2008-27, Observatoire Francais des Conjonctures Economiques (OFCE). [Downloadable!]
  11. C Niranjan Rao, 2008. "The Role of Intellectual Property Rights in Information and Communication Technologies," Working Papers id:1742, esocialsciences.com. [Downloadable!]
  12. Sai Ding & John Knight, 2008. "Why has China Grown So Fast? The Role of Structural Change," Economics Series Working Papers 415, University of Oxford, Department of Economics. [Downloadable!]
  13. Jahangir Aziz, . "Deconstructing China's and India's Growth: the Role of Financial Policies," Indian Council for Research on International Economic Relations, New Delhi Working Papers 224, Indian Council for Research on International Economic Relations, New Delhi, India. [Downloadable!]
  14. Robert Lafrance, 2008. "China's Exchange Rate Policy: A Survey of the Literature," Discussion Papers 08-5, Bank of Canada. [Downloadable!]
  15. Richard Herd & Sean Dougherty, 2007. "Growth Prospects in China and India Compared," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 4(1), pages 65-89, June. [Downloadable!]
  16. Dollar, David & Kraay, Aart, 2005. "Neither a borrower nor a lender : does China's zero net foreign asset position make economic sense?," Policy Research Working Paper Series 3801, The World Bank. [Downloadable!]
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  17. Jin Feng & Lixin He & Hiroshi Sato, 2009. "Public Pension and Household Saving: Evidence from urban China," Global COE Hi-Stat Discussion Paper Series gd08-030, Institute of Economic Research, Hitotsubashi University. [Downloadable!]
  18. Shang-Jin Wei & Xiaobo Zhang, 2009. "The Competitive Saving Motive: Evidence from Rising Sex Ratios and Savings Rates in China," NBER Working Papers 15093, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  19. Sai Ding & John Knight, 2008. "Why has China Grown So Fast? The Role of Physical and Human Capiital Formation," Economics Series Working Papers 414, University of Oxford, Department of Economics. [Downloadable!]
  20. Marcos Chamon & Eswar Prasad, 2008. "Why are Saving Rates of Urban Households in China Rising?," NBER Working Papers 14546, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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