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Does China Save Too Much?

Author

Listed:
  • LAN LU

    (Australian Treasury, Langton Crescent, Parkes ACT 2600, Australia)

  • IAN M. McDONALD

    (Department of Economics, University of Melbourne, Victoria 3010, Australia)

Abstract

This paper, through simulating an open economy model of China, investigates whether the current rate of saving in China is excessive. The model incorporates the major factors that influence optimal saving, namely demographic change, the catch-up of total factor productivity in China to the level of high-income OECD countries, and an endogenous world rate of interest. The paper finds that the rate of time preference that would imply the current rate of saving is optimal is very low; in fact, it is negative. Thus, to justify China's current rate of saving, the social planner would have to put a higher weight on the economic welfare of future generations relative to the current generation, indeed up to 19 times the weight. This suggests that the current rate of saving in China is excessive.

Suggested Citation

  • LAN LU & IAN M. McDONALD, 2006. "Does China Save Too Much?," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 51(03), pages 283-301.
    • Handle: RePEc:wsi:serxxx:v:51:y:2006:i:03:n:s0217590806002469
    DOI: 10.1142/S0217590806002469
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    References listed on IDEAS

    as
    1. David E. Bloom & David Canning & Jaypee Sevilla, 2001. "Economic Growth and the Demographic Transition," NBER Working Papers 8685, National Bureau of Economic Research, Inc.
    2. Olivier Jean Blanchard & Stanley Fischer, 1989. "Lectures on Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262022834, December.
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    Cited by:

    1. 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.

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    Keywords

    Saving; China; living standards;
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