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China's Savings Multiplier

Author

Listed:
  • Halvor Mehlum

    (Department of Economics, University of Oslo)

  • Ragnar Torvik

    (Department of Economics, Norwegian University of Science and Technology)

  • Simone Valente

    (Department of Economics, Norwegian University of Science and Technology)

Abstract

China's growth is characterized by massive capital accumulation, made possible by high and increasing domestic savings. In this paper we develop a model with the aim of explaining why savings rates have been high and increasing, and we investigate the general equilibrium effects on capital accumulation and growth. We show that increased savings and capital accumulation stimulates further savings and capital accumulation, through an intergenerational distribution effect and an old-age requirement effect. We introduce what we term the savings multiplier, and we discuss why and how the one-child policy, and the dismantling of the cradle-to-grave social benefits provided through the state owned enterprises, have stimulated savings and capital accumulation.

Suggested Citation

  • Halvor Mehlum & Ragnar Torvik & Simone Valente, 2013. "China's Savings Multiplier," Working Paper Series 14713, Department of Economics, Norwegian University of Science and Technology.
    • Handle: RePEc:nst:samfok:14713
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    References listed on IDEAS

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    Cited by:

    1. Cozzi, Guido & Davenport, Margaret, 2017. "Extrapolative expectations and capital flows during convergence," Journal of International Economics, Elsevier, vol. 108(C), pages 169-190.
    2. Mehlum, Halvor & Torvik, Ragnar & Valente, Simone, 2016. "The savings multiplier," Journal of Monetary Economics, Elsevier, vol. 83(C), pages 90-105.

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    More about this item

    Keywords

    China; One-child policy; Overlapping generations; Growth; Savings;
    All these keywords.

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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