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Precautionary Savings by Natives and Immigrants in Germany

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Author Info
Matloob Piracha () (University of Kent and IZA)
Yu Zhu () (University of Kent)

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Abstract

This paper analyses the savings behaviour of natives and immigrants in Germany. It is argued that uncertainty about future income and legal status (in case of immigrants) is a key component in the determination of the level of precautionary savings. Using the German Socio-economic Panel data it is shown that, although immigrants have lower levels of savings and are less likely to have regular savings than natives, the gap is significantly narrowed once we take loan repayments and remittances into account. Moreover, we find that marginal propensity to save for immigrants is about 40% higher than that for natives. We then exploit a natural experiment arising from a change in nationality law in Germany in 2000 to estimate the importance of precautionary savings. Using a difference-in-differences approach, we find that the easing of the requirements for naturalization has caused significant reductions of savings and remittances for immigrants as a whole, in the magnitude of 13% and 29% respectively, comparing to the pre-reform period. Our parametric specification shows that the introduction of the new nationality law reduces the gap between natives and immigrants in marginal propensity to save by 40% to 65%, depending on the measure of savings used. These findings suggest that much of the differences in terms of the savings behaviour between natives and immigrants are driven by the precautionary savings arising from the uncertainties about future income and legal status rather than cultural differences.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2942.

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Length: 27 pages
Date of creation: Jul 2007
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Handle: RePEc:iza:izadps:dp2942

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Related research
Keywords: migration; remittances; savings; uncertainty;

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Find related papers by JEL classification:
D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
F22 - International Economics - - International Factor Movements and International Business - - - International Migration

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  1. Chiswick, Barry R, 1978. "The Effect of Americanization on the Earnings of Foreign-born Men," Journal of Political Economy, University of Chicago Press, vol. 86(5), pages 897-921, October. [Downloadable!] (restricted)
  2. Dustmann, Christian, 1997. "Return migration, uncertainty and precautionary savings," Journal of Development Economics, Elsevier, vol. 52(2), pages 295-316, April. [Downloadable!] (restricted)
  3. Carroll, Christopher D & Rhee, Byung-Kun & Rhee, Changyong, 1994. "Are There Cultural Effects on Saving? Some Cross-Sectional Evidence," The Quarterly Journal of Economics, MIT Press, vol. 109(3), pages 685-99, August. [Downloadable!] (restricted)
  4. Merkle, Lucie & Zimmermann, Klaus F., 1992. "Savings, remittances, and return migration," Economics Letters, Elsevier, vol. 38(1), pages 77-81, January. [Downloadable!] (restricted)
  5. Catalina Amuedo-Dorantes & Susan Pozo, 2006. "Remittances as insurance: evidence from Mexican immigrants," Journal of Population Economics, Springer, vol. 19(2), pages 227-254, June. [Downloadable!] (restricted)
  6. Catalina Amuedo-Dorantes & Susan Pozo, 2002. "Precautionary Saving by Young Immigrants and Young Natives," Southern Economic Journal, Southern Economic Association, vol. 69(1), pages 48-71, July.
  7. Karen E. Dynan & Jonathan Skinner & Stephen P. Zeldes, 2000. "Do the rich save more?," Finance and Economics Discussion Series 2000-52, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  8. Thomas K. Bauer & Mathias Sinning, 2005. "The Savings Behavior of Temporary and Permanent Migrants in Germany," IZA Discussion Papers 1632, Institute for the Study of Labor (IZA). [Downloadable!]
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  9. Galor, Oded & Stark, Oded, 1990. "Migrants' Savings, the Probability of Return Migration and Migrants' Performance," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(2), pages 463-67, May. [Downloadable!] (restricted)
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