Advanced Search
MyIDEAS: Login to save this article or follow this journal

The saving–growth–inequality triangle in China

Contents:

Author Info

  • Gu, Xinhua
  • Tam, Pui Sun
Registered author(s):

    Abstract

    China's fast growth is perceived as a major determinant of its savings glut that contributes to global imbalances, but China's income inequality has been largely overlooked as the economy moves rapidly toward the Kuznets curve peak. This paper provides a new explanation for the complex issue of Chinese saving using a structural vector autoregressive (SVAR) model. We find that China's growth is positively affected by saving but has a limited effect on saving, that inequality mainly has a negative impact on growth but has a positive impact on saving, and that inequality is a stronger factor than growth in explaining high saving. Therefore, inequality must be mitigated to lower the high saving rate in China, and growth will be unaffected by lowering both inequality and saving.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.sciencedirect.com/science/article/pii/S0264999313002174
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Bibliographic Info

    Article provided by Elsevier in its journal Economic Modelling.

    Volume (Year): 33 (2013)
    Issue (Month): C ()
    Pages: 850-857

    as in new window
    Handle: RePEc:eee:ecmode:v:33:y:2013:i:c:p:850-857

    Contact details of provider:
    Web page: http://www.elsevier.com/locate/inca/30411

    Related research

    Keywords: China; Saving; Growth; Inequality; SVAR; Global imbalances;

    Find related papers by JEL classification:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Chamon, Marcos & Prasad, Eswar, 2007. "Why Are Saving Rates of Urban Households in China Rising?," IZA Discussion Papers 3191, Institute for the Study of Labor (IZA).
    2. Charles Yuji Horioka & Junmin Wan, 2007. "The determinants of household saving in China: a dynamic panel analysis of provincial data," Working Paper Series 2007-28, Federal Reserve Bank of San Francisco.
    3. Wan, Guang Hua, 2001. "Changes in regional inequality in rural China: decomposing the Gini index by income sources," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 45(3), September.
    4. Dustin Chambers, 2010. "Does a rising tide raise all ships? The impact of growth on inequality," Applied Economics Letters, Taylor & Francis Journals, vol. 17(6), pages 581-586.
    5. Maurizio Franzini & Michele Raitano, 2009. "Persistence of inequality in Europe: the role of family economic conditions," International Review of Applied Economics, Taylor & Francis Journals, vol. 23(3), pages 345-366.
    6. Mark Huggett & Gustavo Ventura, 1997. "Understanding Why High Income Households Save More Than Low Income Households," Working Papers 9701, Centro de Investigacion Economica, ITAM.
    7. Claudio Campanale, 2005. "Increasing Returns To Savings And Wealth Inequality," Working Papers. Serie AD 2005-20, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    8. Franco Modigliani & Shi Larry Cao, 2004. "The Chinese Saving Puzzle and the Life-Cycle Hypothesis," Journal of Economic Literature, American Economic Association, vol. 42(1), pages 145-170, March.
    9. Kai Guo & Papa M'B. P. N'Diaye, 2010. "Determinants of China's Private Consumption," IMF Working Papers 10/93, International Monetary Fund.
    10. Jody Overland & Christopher D. Carroll & David N. Weil, 2000. "Saving and Growth with Habit Formation," American Economic Review, American Economic Association, vol. 90(3), pages 341-355, June.
    11. Meng, Xin, 2003. "Unemployment, consumption smoothing, and precautionary saving in urban China," Journal of Comparative Economics, Elsevier, vol. 31(3), pages 465-485, September.
    12. Dennis Tao Yang, 1999. "Urban-Biased Policies and Rising Income Inequality in China," American Economic Review, American Economic Association, vol. 89(2), pages 306-310, May.
    13. Wu, Ximing & Perloff, Jeffrey M., 2004. "China'S Income Distribution Over Time: Reasons For Rising Inequality," 2004 Annual meeting, August 1-4, Denver, CO 20061, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    14. Alesina, Alberto & Rodrik, Dani, 1994. "Distributive Politics and Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 109(2), pages 465-90, May.
    15. Paul R. Masson & Tamim Bayoumi & Hossein Samiei, 1995. "International Evidenceon the Determinants of Private Saving," IMF Working Papers 95/51, International Monetary Fund.
    16. Li, Hongyi & Squire, Lyn & Zou, Heng-fu, 1998. "Explaining International and Intertemporal Variations in Income Inequality," Economic Journal, Royal Economic Society, vol. 108(446), pages 26-43, January.
    17. Blanchard, Olivier J & Giavazzi, Francesco, 2006. "Rebalancing Growth in China: A Three-Handed Approach," CEPR Discussion Papers 5403, C.E.P.R. Discussion Papers.
    18. Chamon, Marcos & Liu, Kai & Prasad, Eswar, 2013. "Income uncertainty and household savings in China," Journal of Development Economics, Elsevier, vol. 105(C), pages 164-177.
    19. Schmidt-Hebbel, Klaus & Serven, Luis, 2000. "Does income inequality raise aggregate saving?," Journal of Development Economics, Elsevier, vol. 61(2), pages 417-446, April.
    20. Yin Zhang & Guang Hua Wan, 2004. "Liquidity constraint, uncertainty and household consumption in China," Applied Economics, Taylor & Francis Journals, vol. 36(19), pages 2221-2229.
    21. Li, Hongyi & Zou, Heng-fu, 1998. "Income Inequality Is Not Harmful for Growth: Theory and Evidence," Review of Development Economics, Wiley Blackwell, vol. 2(3), pages 318-34, October.
    22. Tuomas Malinen, 2011. "Income Inequality and Savings: A Reassessment of the Relationship in Cointegrated Panels," DEGIT Conference Papers c016_076, DEGIT, Dynamics, Economic Growth, and International Trade.
    23. Hongyi Li & Heng-fu Zou, 2011. "Savings and Income Distribution," CEMA Working Papers 487, China Economics and Management Academy, Central University of Finance and Economics.
    24. Chao, Chi-Chur & Laffargue, Jean-Pierre & Yu, Eden, 2011. "The Chinese saving puzzle and the life-cycle hypothesis: A revaluation," China Economic Review, Elsevier, vol. 22(1), pages 108-120, March.
    25. Jones, Derek C. & Li, Cheng & Owen, Ann L., 2003. "Growth and regional inequality in China during the reform era," China Economic Review, Elsevier, vol. 14(2), pages 186-200.
    26. Romain Ranciere & Nathaniel A. Throckmorton & Michael Kumhof & Claire Lebarz & Alexander W. Richter, 2012. "Income Inequality and Current Account Imbalances," IMF Working Papers 12/8, International Monetary Fund.
    27. Christopher D. Carroll & David N. Weil, 1993. "Saving and growth: a reinterpretation," Working Paper Series / Economic Activity Section 140, Board of Governors of the Federal Reserve System (U.S.).
    28. Loayza, Norman & Schmidt-Hebbel, Klaus & Serven, Luis, 2000. "What drives private saving around the world?," Policy Research Working Paper Series 2309, The World Bank.
    29. Bénabou, Roland, 1996. "Inequality and Growth," CEPR Discussion Papers 1450, C.E.P.R. Discussion Papers.
    30. Barro, Robert J, 2000. " Inequality and Growth in a Panel of Countries," Journal of Economic Growth, Springer, vol. 5(1), pages 5-32, March.
    31. Philip Arestis & Ron Martin & Peter Tyler, 2011. "The Persistence of Inequality?," Cambridge Journal of Regions, Economy and Society, Cambridge Political Economy Society, vol. 4(1), pages 3-11.
    32. Musgrave, Philip, 1980. "Income Distribution and the Aggregate Consumption Function," Journal of Political Economy, University of Chicago Press, vol. 88(3), pages 504-25, June.
    33. Masih, Rumi & Peters, Sanjay, 2010. "A revisitation of the savings-growth nexus in Mexico," Economics Letters, Elsevier, vol. 107(3), pages 318-320, June.
    34. Jiandong Chen & Dai Dai & Ming Pu & Wenxuan Hou & Qiaobin Feng, 2010. "The trend of the Gini coefficient of China," Brooks World Poverty Institute Working Paper Series 10910, BWPI, The University of Manchester.
    35. 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.
    36. Perotti, Roberto, 1996. " Growth, Income Distribution, and Democracy: What the Data Say," Journal of Economic Growth, Springer, vol. 1(2), pages 149-87, June.
    37. Kuijs, Louis, 2006. "How will China's saving-investment balance evolve ?," Policy Research Working Paper Series 3958, The World Bank.
    38. Shujie Yao & Dan Luo, 2009. "The Economic Psychology of Stock Market Bubbles in China," The World Economy, Wiley Blackwell, vol. 32(5), pages 667-691, 05.
    39. Carl Bonham & Calla Wiemer, 2010. "Chinese Saving Dynamics: The Impact of GDP Growth and Dependent Share," Working Papers 2010-11R, University of Hawaii Economic Research Organization, University of Hawaii at Manoa, revised 11 Jan 2012.
    40. Aart Kraay, 2000. "Household Saving in China," World Bank Economic Review, World Bank Group, vol. 14(3), pages 545-570, September.
    41. Jahangir Aziz & Li Cui, 2007. "Explaining China's Low Consumption," IMF Working Papers 07/181, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:eee:ecmode:v:33:y:2013:i:c:p:850-857. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.