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Precautionary Savings by Natives and Immigrants in Germany

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  • Piracha, Matloob

    ()
    (University of Kent)

  • Zhu, Yu

    ()
    (University of Kent)

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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Bibliographic Info

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
Date of revision:
Publication status: published in: Applied Economics, 2012, 44 (21), 2767 - 2776
Handle: RePEc:iza:izadps:dp2942

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Keywords: remittances; migration; uncertainty; savings;

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References

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  1. Catalina Amuedo-Dorantes & Susan Pozo, 2002. "Precautionary Saving by Young Immigrants and Young Natives," Southern Economic Journal, Southern Economic Association, Southern Economic Association, vol. 69(1), pages 48-71, July.
  2. Karen E. Dynan & Jonathan Skinner & Stephen P. Zeldes, 2004. "Do the Rich Save More?," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 112(2), pages 397-444, April.
  3. Chiswick, Barry R, 1978. "The Effect of Americanization on the Earnings of Foreign-born Men," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 86(5), pages 897-921, October.
  4. Bauer, Thomas & Sinning, Mathias, 2005. "The Savings Behaviour of Temporary and Permanent Migrants in Germany," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5102, C.E.P.R. Discussion Papers.
  5. 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, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(2), pages 463-67, May.
  6. Dustmann, Christian, 1997. "Return migration, uncertainty and precautionary savings," Journal of Development Economics, Elsevier, Elsevier, vol. 52(2), pages 295-316, April.
  7. Merkle, Lucie & Zimmermann, Klaus F., 1992. "Savings, remittances, and return migration," Economics Letters, Elsevier, Elsevier, vol. 38(1), pages 77-81, January.
  8. Catalina Amuedo-Dorantes & Susan Pozo, 2006. "Remittances as insurance: evidence from Mexican immigrants," Journal of Population Economics, Springer, Springer, vol. 19(2), pages 227-254, June.
  9. 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, MIT Press, vol. 109(3), pages 685-99, August.
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Cited by:
  1. Yu Zhu & Zhongmin Wu & Meiyan Wang & Yang Du & Fang Cai, 2009. "Do Migrants Really Save More? Understanding the Impact of Remittances on Savings in Rural China," Studies in Economics, Department of Economics, University of Kent 0923, Department of Economics, University of Kent.
  2. Giulia Bettin & Riccardo Lucchetti, 2012. "Intertemporal Remittance Behaviour by Immigrants in Germany," SOEPpapers on Multidisciplinary Panel Data Research 505, DIW Berlin, The German Socio-Economic Panel (SOEP).
  3. Bettin, Giulia & Paçacı Elitok, Seçil & Straubhaar, Thomas, 2012. "Causes and consequences of the downturn in financial remittances to Turkey: A descriptive approach," Edition HWWI: Chapters, Hamburg Institute of International Economics (HWWI), in: Turkey, migration and the EU, pages 133-166 Hamburg Institute of International Economics (HWWI).
  4. Katarzyna Budnik, 2011. "Temporary migration in theories of international mobility of labour," Bank i Kredyt, National Bank of Poland, Economic Institute, National Bank of Poland, Economic Institute, vol. 42(6), pages 7-48.
  5. Kaczmarczyk, Pawel, 2013. "Money for Nothing? Ukrainian Immigrants in Poland and their Remitting Behaviors," IZA Discussion Papers 7666, Institute for the Study of Labor (IZA).
  6. Mahuteau, Stéphane & Piracha, Matloob & Tani, Massimiliano, 2010. "Selection Policy and Immigrants' Remittance Behaviour," IZA Discussion Papers 4874, Institute for the Study of Labor (IZA).
  7. Collier, William & Piracha, Matloob & Randazzo, Teresa, 2011. "Remittances and Return Migration," IZA Discussion Papers 6091, Institute for the Study of Labor (IZA).
  8. Borodak, Daniela & Piracha, Matloob, 2013. "Who Moves and For How Long: Determinants of Different Forms of Migration," IZA Discussion Papers 7388, Institute for the Study of Labor (IZA).
  9. Hulya Ulku, 2012. "Remitting Behaviour of Turkish Migrants: Evidence from Household Data in Germany," Urban Studies, Urban Studies Journal Limited, Urban Studies Journal Limited, vol. 49(14), pages 3139-3158, November.
  10. Hulya Ulku, 2010. "Remitting Behaviour of Turkish Migrants: Evidence from Household Data in Germany," Brooks World Poverty Institute Working Paper Series, BWPI, The University of Manchester 11510, BWPI, The University of Manchester.
  11. Vaira-Lucero, Matias & Nahm, Daehoon & Tani, Massimiliano, 2012. "The Impact of the 1996 US Immigration Policy Reform (IIRIRA) on Mexican Migrants' Remittances," IZA Discussion Papers 6546, Institute for the Study of Labor (IZA).

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