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Risks, Financing Constraints, and High Savings Ratio in the Rural Economy of China: A Model Incorporating Precautionary Savings and Liquidity Constraints

Author

Listed:
  • MA Junlu

    (Department of Finance, School of Economics, Nankai University, Tianjin 300071, PRC)

  • TIAN Gang

    (Department of Finance, School of Economics, Nankai University, Tianjin 300071, PRC)

Abstract

This paper makes an in-depth investigation on the phenomenon of high savings rate in the rural economy of China between 1978 and 2003. On the basis of precautionary savings theory, we construct a model incorporating the risks, liquidity constrains, and aging population to explain the existence of high savings rate in the rural economy of China. We measure risks with Gini coefficient and marginal propensity to save. We find that these risk indices are positively associated with the higher savings rate and the higher degree of prudence of rural households. Our findings pose an urgency of the reform of rural financial system and the improvement in social security system in the rural economy of China.

Suggested Citation

  • MA Junlu & TIAN Gang, 2006. "Risks, Financing Constraints, and High Savings Ratio in the Rural Economy of China: A Model Incorporating Precautionary Savings and Liquidity Constraints," Frontiers of Economics in China-Selected Publications from Chinese Universities, Higher Education Press, vol. 1(1), pages 112-125, March.
    • Handle: RePEc:fec:journl:v:1:y:2006:i:1:p:112-125
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    File URL: http://journal.hep.com.cn/fec/EN/10.1007/s11459-005-0012-z
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    Cited by:

    1. Gałecka, Agnieszka, 2021. "Cost Effectiveness On Farms In Poland Compared To The European Union," Roczniki (Annals), Polish Association of Agricultural Economists and Agribusiness - Stowarzyszenie Ekonomistow Rolnictwa e Agrobiznesu (SERiA), vol. 2021(1).

    More about this item

    Keywords

    rural household savings; risks; precautionary savings; financing constraints;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure

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