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Demographic Patterns and Household Saving in China

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  • Chadwick C. Curtis
  • Steven Lugauer
  • Nelson C. Mark

Abstract

This paper studies the effect that changing demographic patterns have had on the household saving rate in China. We undertake a quantitative investigation using an overlapping generations (OLG) model where agents live for 85 years. Consumers begin to exercise decision making when they are 18. From age 18 to 60, they work and raise children. Dependent children’s utility enter into parent’s utility where parents choose the consumption level of the young until they leave the household. Working agents give a portion of their labor income to their retired parents and save for their own retirement while the aged live on their accumulated assets and support from their children. Remaining assets are bequeathed to the living upon death. We parameterize the model and take future demographic changes, labor income and interest rates as exogenously given from the data. We then run the model from 1963 to 2009 and find that the model accounts for nearly all the observed increase in the household saving rate.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16828.

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Date of creation: Feb 2011
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Handle: RePEc:nbr:nberwo:16828

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  1. Marcos Chamon & Eswar Prasad, 2008. "Why are Saving Rates of Urban Households in China Rising?," NBER Working Papers 14546, National Bureau of Economic Research, Inc.
  2. Krüger, Dirk & Ludwig, Alexander, 2006. "On the Consequences of Demographic Change for Rates of Return to Capital, and the Distribution of Wealth and Welfare," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5834, C.E.P.R. Discussion Papers.
  3. Chang-Tai Hsieh & Peter J Klenow, 2008. "Misallocation and Manufacturing TFP in China and India," 2008 Meeting Papers 121, Society for Economic Dynamics.
  4. Kai Liu & Marcos Chamon & Eswar Prasad, 2010. "Income Uncertainty and Household Savings in China," IMF Working Papers 10/289, International Monetary Fund.
  5. James Feyrer, 2007. "Demographics and Productivity," The Review of Economics and Statistics, MIT Press, vol. 89(1), pages 100-109, February.
  6. Robert Shimer, 1999. "The Impact of Young Workers on the Aggregate Labor Market," NBER Working Papers 7306, National Bureau of Economic Research, Inc.
  7. Guonan Ma & Wang Yi, 2010. "China's high saving rate: myth and reality," BIS Working Papers 312, Bank for International Settlements.
  8. Horag Choi & Nelson C. Mark, 2009. "Trending Current Accounts," NBER Working Papers 15244, National Bureau of Economic Research, Inc.
  9. Orazio P. Attanasio & Agar Brugiavini, 2003. "Social Security And Households' Saving," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 118(3), pages 1075-1119, August.
  10. Nir Jaimovich & Henry E. Siu, 2007. "The Young, the Old, and the Restless: Demographics and Business Cycle Volatility," Discussion Papers, Stanford Institute for Economic Policy Research 07-010, Stanford Institute for Economic Policy Research.
  11. Charles Yuji Horioka & Junmin Wan, 2007. "The determinants of household saving in China: a dynamic panel analysis of provincial data," Working Paper Series, Federal Reserve Bank of San Francisco 2007-28, Federal Reserve Bank of San Francisco.
  12. Rodolfo E. Manuelli & Ananth Seshadri, 2009. "Explaining International Fertility Differences," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 124(2), pages 771-807, May.
  13. Kaiji Chen & Ayse Imrohoroglu & Selo Imrohoroglu, 2005. "Japanese Saving Rate," Macroeconomics, EconWPA 0502017, EconWPA.
  14. Choi, Horag & Mark, Nelson C. & Sul, Donggyu, 2008. "Endogenous discounting, the world saving glut and the U.S. current account," Journal of International Economics, Elsevier, Elsevier, vol. 75(1), pages 30-53, May.
  15. Steven Lugauer, 2012. "Estimating the Effect of the Age Distribution on Cyclical Output Volatility Across the United States," The Review of Economics and Statistics, MIT Press, vol. 94(4), pages 896-902, November.
  16. 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.
  17. Charles Yuji Horioka, 2010. "Aging And Saving In Asia," Pacific Economic Review, Wiley Blackwell, Wiley Blackwell, vol. 15(1), pages 46-55, 02.
  18. Shang-Jin Wei & Xiaobo Zhang, 2009. "The Competitive Saving Motive: Evidence from Rising Sex Ratios and Savings Rates in China," NBER Working Papers 15093, National Bureau of Economic Research, Inc.
  19. Charles Yuji Horioka & Akiko Terada-Hagiwara, 2011. "The Determinants and Long-term Projections of Saving Rates in Developing Asia," NBER Working Papers 17581, National Bureau of Economic Research, Inc.
  20. Hans Fehr & Sabine Jokisch & Laurence J. Kotlikoff, 2007. "Will China Eat Our Lunch or Take Us to Dinner? Simulating the Transition Paths of the United States, the European Union, Japan, and China," NBER Chapters, in: Fiscal Policy and Management in East Asia, NBER-EASE, Volume 16, pages 133-193 National Bureau of Economic Research, Inc.
  21. Ferrero, Andrea, 2010. "A structural decomposition of the U.S. trade balance: Productivity, demographics and fiscal policy," Journal of Monetary Economics, Elsevier, Elsevier, vol. 57(4), pages 478-490, May.
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Citations

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Cited by:
  1. Lugauer, Steven & Redmond, Michael, 2012. "The age distribution and business cycle volatility: International evidence," Economics Letters, Elsevier, Elsevier, vol. 117(3), pages 694-696.
  2. Miguel Sánchez-Romero, 2013. "The role of demography on per capita output growth and saving rates," Journal of Population Economics, Springer, Springer, vol. 26(4), pages 1347-1377, October.
  3. Sánchez-Romero, Miguel & Sambt, Jože & Prskawetz, Alexia, 2012. "Quantifying the role of alternative pension reforms on the Austrian economy," ECON WPS - Vienna University of Technology Working Papers in Economic Theory and Policy 04/2012, Vienna University of Technology, Institute for Mathematical Methods in Economics, Research Group Economics (ECON).
  4. Steven Lugauer, 2012. "The Supply of Skills in the Labor Force and Aggregate Output Volatility," Working Papers 005, University of Notre Dame, Department of Economics, revised Jun 2012.
  5. Vincenzo Quadrini, 2013. "Imbalances and Policies," International Journal of Central Banking, International Journal of Central Banking, International Journal of Central Banking, vol. 9(2), pages 89-100, June.
  6. Yao, Yang, 2014. "The Chinese Growth Miracle," Handbook of Economic Growth, Elsevier, in: Handbook of Economic Growth, edition 1, volume 2, chapter 7, pages 943-1031 Elsevier.
  7. J. Laurenceson & C.J. O’Donnell, 2011. "New Estimates and a Decomposition of Provincial Productivity Change in China," CEPA Working Papers Series WP042011, School of Economics, University of Queensland, Australia.
  8. Nelson Mark & Steven Lugauer & Clayton Sadler, 2012. "The Role of Household Saving in the Economic Rise of China," Working Papers 004, University of Notre Dame, Department of Economics, revised Jun 2012.
  9. Coeurdacier, Nicolas & Guibaud, Stéphane & Jin, Keyu, 2012. "Credit Constraints and Growth in a Global Economy," CEPR Discussion Papers, C.E.P.R. Discussion Papers 9109, C.E.P.R. Discussion Papers.
  10. Samuel Cudré, 2014. "Capital’s long march west: saving and investment frictions in Chinese regions," ECON - Working Papers, Department of Economics - University of Zurich 161, Department of Economics - University of Zurich.
  11. Keyu Jin & Nicolas Coeurdacier, 2013. "The One-Child Policy and Household Savings in China," 2013 Meeting Papers, Society for Economic Dynamics 790, Society for Economic Dynamics.
  12. Il Houng Lee & Xu Qingjun & Murtaza H. Syed, 2013. "China’s Demography and its Implications," IMF Working Papers 13/82, International Monetary Fund.

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