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Demographic Patterns and Household Saving in China

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  • Steven Lugauer

    ()
    (Department of Economics, University of Notre Dame)

  • Nelson Mark

    ()
    (Department of Economics, University of Notre Dame)

Abstract

This paper studies how changing demographics can explain much of the evolution of China's household saving rate from 1955 to 2009. We undertake a quantitative investigation using an overlapping generations model in which agents live for 85 years. Agents begin to exercise decision making when they are 20. From age 20 to 63, they work. From age 20 to 49, they also provide for children. Dependent children's consumption enters into the parent's utility, and parents choose the consumption level of the young until they leave the household. Working agents transfer a portion of their labor income to their retired parents and save for their own retirement. Retirees live of of their accumulated assets and support from current workers. We present agents in the parameterized model with the future time-path of the demographics, interest rates and wages as given by the data and analyze their saving decisions. The simulated model accounts for nearly all the observed increase in the household saving rate from 1955 to 2009.

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File URL: http://www3.nd.edu/~tjohns20/RePEc/deendus/wpaper/006_saving.pdf
File Function: First version, 2010
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Bibliographic Info

Paper provided by University of Notre Dame, Department of Economics in its series Working Papers with number 007.

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Length: 32 pages
Date of creation: Dec 2010
Date of revision: Jun 2012
Handle: RePEc:nod:wpaper:006

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Keywords: Saving Rate; Life-Cycle; China; Demographics; Overlapping Generations;

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References

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  1. Franco Modigliani & Shi Larry Cao, 2004. "The Chinese Saving Puzzle and the Life-Cycle Hypothesis," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 42(1), pages 145-170, March.
  2. Chamon, Marcos & Prasad, Eswar, 2007. "Why Are Saving Rates of Urban Households in China Rising?," IZA Discussion Papers 3191, Institute for the Study of Labor (IZA).
  3. Krueger, Dirk & Ludwig, Alexander, 2007. "On the consequences of demographic change for rates of returns to capital, and the distribution of wealth and welfare," Journal of Monetary Economics, Elsevier, Elsevier, vol. 54(1), pages 49-87, January.
  4. 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.
  5. Chang-Tai Hsieh & Peter J. Klenow, 2007. "Misallocation and Manufacturing TFP in China and India," Discussion Papers, Stanford Institute for Economic Policy Research 07-006, Stanford Institute for Economic Policy Research.
  6. 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.
  7. James Feyrer, 2007. "Demographics and Productivity," The Review of Economics and Statistics, MIT Press, vol. 89(1), pages 100-109, February.
  8. 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, National Bureau of Economic Research, Inc, in: Fiscal Policy and Management in East Asia, NBER-EASE, Volume 16, pages 133-193 National Bureau of Economic Research, Inc.
  9. Nir Jaimovich & Henry E. Siu, 2007. "The young, the old, and the restless: demographics and business cycle volatility," Staff Report, Federal Reserve Bank of Minneapolis 387, Federal Reserve Bank of Minneapolis.
  10. Charles Yuji Horioka & Junmin Wan, 2006. "The Determinants of Household Saving in China: A Dynamic Panel Analysis of Provincial Data," NBER Working Papers 12723, National Bureau of Economic Research, Inc.
  11. Robert Shimer, 1999. "The Impact of Young Workers on the Aggregate Labor Market," NBER Working Papers 7306, National Bureau of Economic Research, Inc.
  12. Kai Liu & Marcos Chamon & Eswar Prasad, 2010. "Income Uncertainty and Household Savings in China," IMF Working Papers 10/289, International Monetary Fund.
  13. Guonan Ma & Wang Yi, 2010. "China’s High Saving Rate: Myth and Reality," Economie Internationale, CEPII research center, CEPII research center, issue 122, pages 5-40.
  14. 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.
  15. 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.
  16. 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.
  17. Shang-Jin Wei & Xiaobo Zhang, 2011. "The Competitive Saving Motive: Evidence from Rising Sex Ratios and Savings Rates in China," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 119(3), pages 511 - 564.
  18. Selo Imrohoroglu & Kaiji Chen & Ayse Imrohoroglu, 2005. "Japanese Saving Rate," 2005 Meeting Papers, Society for Economic Dynamics 747, Society for Economic Dynamics.
  19. Horag Choi & Nelson C. Mark, 2009. "Trending Current Accounts," NBER Working Papers 15244, National Bureau of Economic Research, Inc.
  20. Charles Yuji Horioka, 2010. "Aging And Saving In Asia," Pacific Economic Review, Wiley Blackwell, Wiley Blackwell, vol. 15(1), pages 46-55, 02.
  21. 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.
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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. 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.
  3. Keyu Jin & Stéphane Guibaud & Nicolas Coeurdacier, 2011. "Credit constraints and growth in a global economy," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 35706, London School of Economics and Political Science, LSE Library.
  4. 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).
  5. 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.
  6. 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.
  7. Nelson Mark & Steven Lugauer & Clayton Sadler, 2012. "The Role of Household Saving in the Economic Rise of China," Working Papers, University of Notre Dame, Department of Economics 004, University of Notre Dame, Department of Economics, revised Jun 2012.
  8. 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.
  9. Miguel Sánchez Romero, 2011. "The role of demography on per capita output growth and saving rates," MPIDR Working Papers WP-2011-015, Max Planck Institute for Demographic Research, Rostock, Germany.
  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. Il Houng Lee & Xu Qingjun & Murtaza H. Syed, 2013. "China’s Demography and its Implications," IMF Working Papers 13/82, International Monetary Fund.
  12. Steven Lugauer, 2012. "The Supply of Skills in the Labor Force and Aggregate Output Volatility," Working Papers, University of Notre Dame, Department of Economics 005, University of Notre Dame, Department of Economics, revised Jun 2012.

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