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China's Savings Multiplier

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  • 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.

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Bibliographic Info

Paper provided by Department of Economics, Norwegian University of Science and Technology in its series Working Paper Series with number 14713.

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Length: 51 pages
Date of creation: 06 Jun 2013
Date of revision:
Handle: RePEc:nst:samfok:14713

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Keywords: China; One-child policy; Overlapping generations; Growth; Savings;

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  1. Olivier Blanchard & Francesco Giavazzi, 2006. "Rebalancing Growth in China: A Three-Handed Approach," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 14(4), pages 1-20.
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  15. James, Estelle, 2002. "How can China solve its old-age security problem? The interaction between pension, state enterprise and financial market reform," Journal of Pension Economics and Finance, Cambridge University Press, vol. 1(01), pages 53-75, March.
  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. Win Lin Chou & Zijun Wang, 2009. "Regional inequality in China's health care expenditures," Health Economics, John Wiley & Sons, Ltd., vol. 18(S2), pages S137-S146, July.
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  20. Xin Meng, 2012. "Labor Market Outcomes and Reforms in China," Journal of Economic Perspectives, American Economic Association, vol. 26(4), pages 75-102, Fall.
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