IDEAS home Printed from https://ideas.repec.org/a/tpr/asiaec/v18y2019i2p145-162.html
   My bibliography  Save this article

A Model of Household Savings and Alternative Investments in Rural China

Author

Listed:
  • Yuekai Cheng

    (Research Department Minsheng Securities 17 Floors, Block A, Minsheng Financial Center 28 Jianguomennei Street, Dongcheng District Beijing, China)

  • Hongyi Li

    (Business School Chinese University of Hong Kong Room 904, 9/F Cheng Yu Tung Building 12 Chak Cheung Street Shatin, N.T., Hong Kong)

  • Qi Sun

    (School of Business Administration Academy of Zheshang Entrepreneurship Zhejiang Gongshang University 18 Xuezheng Street High Education Park, Xiasha District Hangzhou, China)

  • Yu Wang

    (Business School Chinese University of Hong Kong Room 951, 9/F Cheng Yu Tung Building 12 Chak Cheung Street Shatin, N.T., Hong Kong)

Abstract

This paper explores the relationship between monetary policy, prices, and rural household savings and investment behavior in China. We first develop a two-period life-cycle model with bequests for China's rural economy to analyze the impacts of interest rates, agricultural product prices, and housing prices on rural households’ capital allocation choices (households’ savings deposits, investment in private housing, and investment in agricultural productive fixed assets). We then empirically estimate the theoretical model equations with a newly compiled panel dataset covering the rural areas of 26 provinces from 2001 to 2016. Our empirical results suggest that high housing prices are harmful to the rural economy as they reduce productive investment and consumption. An efficient interest rate market and land tenure system reform are recommended.

Suggested Citation

  • Yuekai Cheng & Hongyi Li & Qi Sun & Yu Wang, 2019. "A Model of Household Savings and Alternative Investments in Rural China," Asian Economic Papers, MIT Press, vol. 18(2), pages 145-162, Summer.
    • Handle: RePEc:tpr:asiaec:v:18:y:2019:i:2:p:145-162
    as

    Download full text from publisher

    File URL: http://www.mitpressjournals.org/doi/pdf/10.1162/asep_a_00706
    Download Restriction: Access to PDF is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. 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.
    2. Fan, Shenggen & Zhang, Linxiu & Zhang, Xiaobo, 2004. "Reforms, Investment, and Poverty in Rural China," Economic Development and Cultural Change, University of Chicago Press, vol. 52(2), pages 395-421, January.
    3. Ramesh Mohan, 2006. "Causal Relationship Between Savings And Economic Growth In Countries With Different Income Levels," Economics Bulletin, AccessEcon, vol. 5(3), pages 1-12.
    4. Robert G. King & Ross Levine, 1993. "Finance and Growth: Schumpeter Might Be Right," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(3), pages 717-737.
    5. Bela Balassa, 1993. "The Effects of Interest Rates on Savings in Developing Countries," Palgrave Macmillan Books, in: Policy Choices for the 1990s, chapter 8, pages 242-258, Palgrave Macmillan.
    6. Chadwick C. Curtis & Steven Lugauer & Nelson C. Mark, 2015. "Demographic Patterns and Household Saving in China," American Economic Journal: Macroeconomics, American Economic Association, vol. 7(2), pages 58-94, April.
    7. Horag Choi & Steven Lugauer & Nelson C. Mark, 2017. "Precautionary Saving of Chinese and U.S. Households," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 49(4), pages 635-661, June.
    8. Liu Hongyu & Yun W. Park & Zheng Siqi, 2002. "The Interaction between Housing Investment and Economic Growth in China," International Real Estate Review, Global Social Science Institute, vol. 5(1), pages 40-60.
    9. Levine, Ross & Zervos, Sara, 1996. "Stock Market Development and Long-Run Growth," The World Bank Economic Review, World Bank, vol. 10(2), pages 323-339, May.
    10. Deininger, Klaus & Jin, Songqing, 2006. "Tenure security and land-related investment: Evidence from Ethiopia," European Economic Review, Elsevier, vol. 50(5), pages 1245-1277, July.
    11. Curtis, Chadwick C. & Lugauer, Steven & Mark, Nelson C., 2017. "Demographics and aggregate household saving in Japan, China, and India," Journal of Macroeconomics, Elsevier, vol. 51(C), pages 175-191.
    12. Susan M. Collins, 1991. "Saving Behavior in Ten Developing Countries," NBER Chapters, in: National Saving and Economic Performance, pages 349-376, National Bureau of Economic Research, Inc.
    13. Iacoviello, Matteo & Pavan, Marina, 2013. "Housing and debt over the life cycle and over the business cycle," Journal of Monetary Economics, Elsevier, vol. 60(2), pages 221-238.
    14. Norman Loayza & Klaus Schmidt-Hebbel & Luis Servén, 2000. "What Drives Private Saving Across the World?," The Review of Economics and Statistics, MIT Press, vol. 82(2), pages 165-181, May.
    15. Loayza, Norman & Schmidt-Hebbel, Klaus & Serven, Luis, 2000. "What drives private saving around the world?," Policy Research Working Paper Series 2309, The World Bank.
    16. Dong, Xiao-Yuan, 1996. "Two-tier land tenure system and sustained economic growth in post-1978 rural China," World Development, Elsevier, vol. 24(5), pages 915-928, May.
    17. Markus Goldstein & Christopher Udry, 2008. "The Profits of Power: Land Rights and Agricultural Investment in Ghana," Journal of Political Economy, University of Chicago Press, vol. 116(6), pages 981-1022, December.
    18. Aart Kraay, 2000. "Household Saving in China," The World Bank Economic Review, World Bank, vol. 14(3), pages 545-570, September.
    19. Woodruff, Christopher & Zenteno, Rene, 2007. "Migration networks and microenterprises in Mexico," Journal of Development Economics, Elsevier, vol. 82(2), pages 509-528, March.
    20. Fleisher, Belton M. & Liu, Yunhua & Li, Hongyi, 1994. "Financial intermediation, inflation, and capital formation in rural China," China Economic Review, Elsevier, vol. 5(1), pages 101-115.
    21. Hanan G. Jacoby & Guo Li & Scott Rozelle, 2002. "Hazards of Expropriation: Tenure Insecurity and Investment in Rural China," American Economic Review, American Economic Association, vol. 92(5), pages 1420-1447, December.
    22. Yu Chen & Sylvie Démurger, 2014. "Pro-rural Policies, Income, and Inequality: Evaluating a Cash-for-Work Program in Rural China," Asian Economic Papers, MIT Press, vol. 13(3), pages 87-114, Fall.
    23. Feder, Gershon & Lau, Lawrence J & Lin, Justin Y & Luo, Xiaopeng, 1992. "The Determinants of Farm Investment and Residential Construction in Post-Reform China," Economic Development and Cultural Change, University of Chicago Press, vol. 41(1), pages 1-26, October.
    24. Carl Johan Lagerkvist, 2005. "Agricultural policy uncertainty and farm level adjustments--the case of direct payments and incentives for farmland investment," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 32(1), pages 1-23, March.
    25. Junmin Wan, 2015. "Household Savings and Housing Prices in China," The World Economy, Wiley Blackwell, vol. 38(1), pages 172-192, January.
    26. Gregory C. Chow, 1993. "Capital Formation and Economic Growth in China," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(3), pages 809-842.
    27. Lin, Justin Yifu, 1992. "Rural Reforms and Agricultural Growth in China," American Economic Review, American Economic Association, vol. 82(1), pages 34-51, March.
    28. Bela Balassa, 1993. "Policy Choices for the 1990s," Palgrave Macmillan Books, Palgrave Macmillan, number 978-1-349-13033-7.
    29. Bulte, Erwin & van Soest, Daan, 1999. "A note on soil depth, failing markets and agricultural pricing," Journal of Development Economics, Elsevier, vol. 58(1), pages 245-254, February.
    30. de Brauw, Alan & Rozelle, Scott, 2008. "Migration and household investment in rural China," China Economic Review, Elsevier, vol. 19(2), pages 320-335, June.
    31. Hengyun Ma & Jikun Huang & Les Oxley, 2013. "Capital Formation and Agricultural Growth in China," Asian Economic Papers, MIT Press, vol. 12(1), pages 166-190, Winter/Sp.
    32. Kanbur, Ravi & Zhang, Xiaobo, 1999. "Which Regional Inequality? The Evolution of Rural-Urban and Inland-Coastal Inequality in China from 1983 to 1995," Journal of Comparative Economics, Elsevier, vol. 27(4), pages 686-701, December.
    33. Zhao, Yaohui, 2002. "Causes and Consequences of Return Migration: Recent Evidence from China," Journal of Comparative Economics, Elsevier, vol. 30(2), pages 376-394, June.
    34. Gulnur MURADOGLU & Fatma TASKIN, 1996. "Differences In Household Savings Behavior: Evidence From Industrial And Developing Countries," The Developing Economies, Institute of Developing Economies, vol. 34(2), pages 138-153, June.
    35. Conor M. O'Toole & Carol Newman & Thia Hennessy, 2014. "Financing Constraints and Agricultural Investment: Effects of the Irish Financial Crisis," Journal of Agricultural Economics, Wiley Blackwell, vol. 65(1), pages 152-176, January.
    36. Brown, Richard P. C., 1997. "Estimating remittance functions for Pacific Island Migrants," World Development, Elsevier, vol. 25(4), pages 613-626, January.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Manger, Mark S. & Matthews, J. Scott, 2021. "Knowing when to splurge: Precautionary saving and Chinese-Canadians," Journal of Asian Economics, Elsevier, vol. 76(C).
    2. Bruce, John W. & Li, Zongmin, 2009. "“Crossing the river while feeling the rocks”: Incremental land reform and its impact on rural welfare in China," IFPRI discussion papers 926, International Food Policy Research Institute (IFPRI).
    3. Thomas Vendryes, 2014. "Peasants Against Private Property Rights: A Review Of The Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 28(5), pages 971-995, December.
    4. Ismail, Aisha & Rashid, Kashif, 2013. "Determinants of household saving: Cointegrated evidence from Pakistan (1975–2011)," Economic Modelling, Elsevier, vol. 32(C), pages 524-531.
    5. Leight, Jessica, 2016. "Reallocating wealth? Insecure property rights and agricultural investment in rural China," China Economic Review, Elsevier, vol. 40(C), pages 207-227.
    6. Curtis, Chadwick C. & Lugauer, Steven & Mark, Nelson C., 2017. "Demographics and aggregate household saving in Japan, China, and India," Journal of Macroeconomics, Elsevier, vol. 51(C), pages 175-191.
    7. Chowdhury, Abdur, 2015. "Terms of trade shocks and private savings in the developing countries," Journal of Comparative Economics, Elsevier, vol. 43(4), pages 1122-1134.
    8. Jehovaness Aikaeli & Thomas Markussen, 2017. "The effects of land titling in Tanzania," WIDER Working Paper Series 168, World Institute for Development Economic Research (UNU-WIDER).
    9. Carl Bonham & Calla Wiemer, 2013. "Chinese saving dynamics: the impact of GDP growth and the dependent share," Oxford Economic Papers, Oxford University Press, vol. 65(1), pages 173-196, January.
    10. Bollinger, Christopher & Ding, Xiaozhou & Lugauer, Steven, 2022. "The expansion of higher education and household saving in China," China Economic Review, Elsevier, vol. 71(C).
    11. Jin, Songqing & Deininger, Klaus, 2009. "Land rental markets in the process of rural structural transformation: Productivity and equity impacts from China," Journal of Comparative Economics, Elsevier, vol. 37(4), pages 629-646, December.
    12. Steven Lugauer & Jinlan Ni & Zhichao Yin, 2014. "Micro-Data Evidence on Family Size and Chinese Saving Rates," Working Papers 023, University of Notre Dame, Department of Economics, revised Jun 2014.
    13. Chadwick C. Curtis & Steven Lugauer & Nelson C. Mark, 2015. "Demographic Patterns and Household Saving in China," American Economic Journal: Macroeconomics, American Economic Association, vol. 7(2), pages 58-94, April.
    14. Can Xu & Andreas Steiner, 2022. "Does Public Employment Affect Household Saving Rates? Evidence from Chinese Household Data," CESifo Working Paper Series 9741, CESifo.
    15. Deininger, Klaus & Jin, Songqing & Xia, Fang & Huang, Jikun, 2014. "Moving Off the Farm: Land Institutions to Facilitate Structural Transformation and Agricultural Productivity Growth in China," World Development, Elsevier, vol. 59(C), pages 505-520.
    16. Gu, Xinhua & Tam, Pui Sun & Li, Guoqiang & Zhao, Qingbin, 2020. "An alternative explanation for high saving in China: Rising inequality," International Review of Economics & Finance, Elsevier, vol. 69(C), pages 1082-1094.
    17. Jehovaness Aikaeli & Thomas Markussen, 2017. "The effects of land titling in Tanzania," WIDER Working Paper Series wp-2017-168, World Institute for Development Economic Research (UNU-WIDER).
    18. Hongqin Chang & Jing Liu & Yanyun Gao, 2017. "Land tenure policy and women’s off-farm employment in rural China," Working Papers PMMA 2017-03, PEP-PMMA.
    19. Yi, Yuanyuan, 2023. "Devolution of tenure rights in forestland in China: Impact on investment and forest growth," Forest Policy and Economics, Elsevier, vol. 154(C).
    20. Ma, Meilin, 2023. "Interdependent investments in attached and movable assets under insecure land rights," China Economic Review, Elsevier, vol. 77(C).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:tpr:asiaec:v:18:y:2019:i:2:p:145-162. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Kelly McDougall (email available below). General contact details of provider: https://direct.mit.edu/journals .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.