IDEAS home Printed from https://ideas.repec.org/a/eee/chieco/v22y2011i1p108-120.html
   My bibliography  Save this article

The Chinese saving puzzle and the life-cycle hypothesis: A revaluation

Author

Listed:
  • Chao, Chi-Chur
  • Laffargue, Jean-Pierre
  • Yu, Eden

Abstract

In a stimulating paper, Modigliani and Cao (2004) concluded that most of the huge increase in the household saving rate in China since 1975, the 'Chinese saving puzzle', can be explained by the life-cycle hypothesis. Their analysis is based on the estimation of reduced form equations. However, a structural model of their hypothesis would impose constraints on these equations. For not taking them into account, their test of the life-cycle hypothesis lacks power. In this paper, we develop a structural model of household saving behavior based on the life-cycle hypothesis for the Chinese economy. We find that the life-cycle hypothesis can explain only 35% of the surge of the Chinese household saving. We then add to the model the strong motivation of young adults for buying a home and the financial support they receive from their parent for that. In this way, the model can reproduce the high and increasing level of saving since the mid-nineties. Nonetheless the increase in household saving, which took place during the eighties, may not be explained by the life-cycle hypothesis.

Suggested Citation

  • Chao, Chi-Chur & Laffargue, Jean-Pierre & Yu, Eden, 2011. "The Chinese saving puzzle and the life-cycle hypothesis: A revaluation," China Economic Review, Elsevier, vol. 22(1), pages 108-120, March.
    • Handle: RePEc:eee:chieco:v:22:y:2011:i:1:p:108-120
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1043-951X(10)00099-4
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. 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.
    2. Hans Fehr & Sabine Jokisch & Laurence J Kotlikoff, 2006. "Will China Eat Our Lunch or Take Us to Dinner? Simulating the Transition Paths of the US, EU, Japan and China," RBA Annual Conference Volume (Discontinued), in: Christopher Kent & Anna Park & Daniel Rees (ed.),Demography and Financial Markets, Reserve Bank of Australia.
    3. Charles Yuji Horioka, 2002. "Are the Japanese Selfish, Altruistic or Dynastic?," The Japanese Economic Review, Japanese Economic Association, vol. 53(1), pages 26-54, March.
    4. Marcos D. Chamon & Eswar S. Prasad, 2010. "Why Are Saving Rates of Urban Households in China Rising?," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(1), pages 93-130, January.
    5. Hans Fehr & Sabine Jokisch & Laurence J. Kotlikoff, 2005. "Will China Eat Our Lunch or Take Us Out to Dinner? Simulating the Transition Paths of the U.S., EU, Japan, and China," NBER Working Papers 11668, National Bureau of Economic Research, Inc.
    6. 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, vol. 119(3), pages 511-564.
    7. Feng, Jin & He, Lixin & Sato, Hiroshi, 2011. "Public pension and household saving: Evidence from urban China," Journal of Comparative Economics, Elsevier, vol. 39(4), pages 470-485.
    8. Meng, Xin, 2003. "Unemployment, consumption smoothing, and precautionary saving in urban China," Journal of Comparative Economics, Elsevier, vol. 31(3), pages 465-485, September.
    9. LAN LU & IAN M. McDONALD, 2006. "Does China Save Too Much?," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 51(03), pages 283-301.
    10. Ding, Weili & Zhang, Yuan, 2014. "When a son is born: The impact of fertility patterns on family finance in rural China," China Economic Review, Elsevier, vol. 30(C), pages 192-208.
    11. Kuijs, Louis, 2006. "How will China's saving-investment balance evolve ?," Policy Research Working Paper Series 3958, The World Bank.
    12. Mr. Jahangir Aziz, 2006. "Rebalancing China’s Economy: What Does Growth Theory Tell Us?," IMF Working Papers 2006/291, International Monetary Fund.
    13. Harrigan, James, 2010. "Airplanes and comparative advantage," Journal of International Economics, Elsevier, vol. 82(2), pages 181-194, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Steven Lugauer & Jinlan Ni & Zhichao Yin, 2014. "Micro-Data Evidence on Family Size and Chinese Saving Rates," Working Papers 023, University of Notre Dame, Department of Economics, revised Jun 2014.
    2. Charles Yuji Horioka, 2021. "Is the selfish life-cycle model more applicable in Japan and, if so, why? A literature survey," Review of Economics of the Household, Springer, vol. 19(1), pages 157-187, March.
    3. Le Wen & Krishna P. Paudel & Qinying He, 2022. "Temporary Migration and Savings Rates: Evidence from China," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 34(6), pages 2810-2849, December.
    4. Curtis, Chadwick C. & Lugauer, Steven & Mark, Nelson C., 2017. "Demographics and aggregate household saving in Japan, China, and India," Journal of Macroeconomics, Elsevier, vol. 51(C), pages 175-191.
    5. Bollinger, Christopher & Ding, Xiaozhou & Lugauer, Steven, 2022. "The expansion of higher education and household saving in China," China Economic Review, Elsevier, vol. 71(C).
    6. Manger, Mark S. & Matthews, J. Scott, 2021. "Knowing when to splurge: Precautionary saving and Chinese-Canadians," Journal of Asian Economics, Elsevier, vol. 76(C).
    7. Liu, Lu & Wang, Qiuyun & Zhang, Anquan, 2019. "The impact of housing price on non-housing consumption of the Chinese households: A general equilibrium analysis," The North American Journal of Economics and Finance, Elsevier, vol. 49(C), pages 152-164.
    8. Dingqing Wang & Enqi Zhang & Hongwei Liao, 2022. "Does Fiscal Decentralization Affect Regional High-Quality Development by Changing Peoples’ Livelihood Expenditure Preferences: Provincial Evidence from China," Land, MDPI, vol. 11(9), pages 1-20, August.
    9. Miaoxi Zhao & Xingjian Liu & Ben Derudder & Ye Zhong & Wei Shen, 2015. "Mapping producer services networks in mainland Chinese cities," Urban Studies, Urban Studies Journal Limited, vol. 52(16), pages 3018-3034, December.
    10. van Treeck, Till. & Sturn, Simon., 2012. "Income inequality as a cause of the Great Recession? : A survey of current debates," ILO Working Papers 994709343402676, International Labour Organization.
    11. Gu, Xinhua & Tam, Pui Sun & Li, Guoqiang & Zhao, Qingbin, 2020. "An alternative explanation for high saving in China: Rising inequality," International Review of Economics & Finance, Elsevier, vol. 69(C), pages 1082-1094.
    12. Chang, Xiao & An, Tongliang & Tam, Pui Sun & Gu, Xinhua, 2020. "National savings rate and sectoral income distribution: An empirical look at China," China Economic Review, Elsevier, vol. 61(C).
    13. Yu, Jihai & Zhu, Guozhong, 2013. "How uncertain is household income in China," Economics Letters, Elsevier, vol. 120(1), pages 74-78.
    14. Xiaoqing Ai & Hongda Zhang & Keyu Guo & Fubin Shi, 2022. "Does Regional Innovation Environment Have an Impact on the Gathering of Technological Talent? An Empirical Study Based on 31 Provinces in China," Sustainability, MDPI, vol. 14(23), pages 1-17, November.
    15. Gu, Xinhua & Tam, Pui Sun, 2013. "The saving–growth–inequality triangle in China," Economic Modelling, Elsevier, vol. 33(C), pages 850-857.
    16. Yating Dai & Jian Cheng & Daolin Zhu, 2022. "Understanding the Impact of Land Supply Structure on Low Consumption: Empirical Evidence from China," Land, MDPI, vol. 11(4), pages 1-18, April.
    17. Xiaoyu Deng & Jing Tian & Rong Chen, 2019. "Effect of Social Security System on Consumption through Income and Uncertainty: Evidence from China," Sustainability, MDPI, vol. 11(7), pages 1-16, March.
    18. Samuel Cudré, 2014. "Capital’s long march west: saving and investment frictions in Chinese regions," ECON - Working Papers 161, Department of Economics - University of Zurich.
    19. Fan, Meiting & Li, Mengxu & Liu, Jianghua & Shao, Shuai, 2022. "Is high natural resource dependence doomed to low carbon emission efficiency? Evidence from 283 cities in China," Energy Economics, Elsevier, vol. 115(C).
    20. Yu, Yan-Yan & Liang, Qiao-mei & Liu, Li-Jing, 2023. "Impact of population ageing on carbon emissions: A case of China's urban households," Structural Change and Economic Dynamics, Elsevier, vol. 64(C), pages 86-100.
    21. Liu, Lu, 2023. "Mortgage loan and housing market," International Review of Economics & Finance, Elsevier, vol. 83(C), pages 736-749.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Chamon, Marcos & Liu, Kai & Prasad, Eswar, 2013. "Income uncertainty and household savings in China," Journal of Development Economics, Elsevier, vol. 105(C), pages 164-177.
    2. Gu, Xinhua & Tam, Pui Sun, 2013. "The saving–growth–inequality triangle in China," Economic Modelling, Elsevier, vol. 33(C), pages 850-857.
    3. Bussière, Matthieu & Kalantzis, Yannick & Lafarguette, Romain & Sicular, Terry, 2013. "Understanding household savings in China: the role of the housing market and borrowing constraints," MPRA Paper 44611, University Library of Munich, Germany.
    4. Gu, Xinhua & Tam, Pui Sun & Li, Guoqiang & Zhao, Qingbin, 2020. "An alternative explanation for high saving in China: Rising inequality," International Review of Economics & Finance, Elsevier, vol. 69(C), pages 1082-1094.
    5. van Treeck, Till. & Sturn, Simon., 2012. "Income inequality as a cause of the Great Recession? : A survey of current debates," ILO Working Papers 994709343402676, International Labour Organization.
    6. Christian Dreger & Tongsan Wang & Yanqun Zhang, 2015. "Understanding Chinese Consumption: The Impact of Hukou," Development and Change, International Institute of Social Studies, vol. 46(6), pages 1331-1344, November.
    7. Tan, Jing & Xu, Hao & Yu, Jingwen, 2022. "The effect of homeownership on migrant household savings: Evidence from the removal of home purchase restrictions in China," Economic Modelling, Elsevier, vol. 106(C).
    8. Shaojie Zhou & Junsen Zhang, 2016. "Chinese Saving Rates from 1953 to 2012: Trends, Compositions and Prospects," Pacific Economic Review, Wiley Blackwell, vol. 21(2), pages 227-252, May.
    9. Dennis Tao Yang & Junsen Zhang & Shaojie Zhou, 2012. "Why Are Saving Rates So High in China?," NBER Chapters, in: Capitalizing China, pages 249-278, National Bureau of Economic Research, Inc.
    10. Riccardo Cristadoro & Daniela Marconi, 2012. "Household savings in China," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 10(3), pages 275-299, November.
    11. Hui He & Feng Huang & Zheng Liu & Dongming Zhu, 2014. "Breaking the “Iron Rice Bowl” and Precautionary Swings: Evidence from Chinese State-Owned Enterprises Reform," Working Paper Series 2014-4, Federal Reserve Bank of San Francisco.
    12. Wang, Junhui & Ai, Shuang & Huang, Mian, 2021. "Migration history, hukou status, and urban household consumption," Economic Modelling, Elsevier, vol. 97(C), pages 437-448.
    13. Chadwick C. Curtis & Steven Lugauer & Nelson C. Mark, 2015. "Demographic Patterns and Household Saving in China," American Economic Journal: Macroeconomics, American Economic Association, vol. 7(2), pages 58-94, April.
    14. Rui Yao & Jing Xiao & Li Liao, 2015. "Effects of Age on Saving Motives of Chinese Urban Consumers," Journal of Family and Economic Issues, Springer, vol. 36(2), pages 224-238, June.
    15. Can Xu & Andreas Steiner, 2022. "Does Public Employment Affect Household Saving Rates? Evidence from Chinese Household Data," CESifo Working Paper Series 9741, CESifo.
    16. Wang, Jianqiu & Yin, Zhichao & Jiang, Jialing, 2023. "The effect of the digital divide on household consumption in China," International Review of Financial Analysis, Elsevier, vol. 87(C).
    17. He, Hui & Huang, Feng & Liu, Zheng & Zhu, Dongming, 2018. "Breaking the “iron rice bowl:” Evidence of precautionary savings from the chinese state-owned enterprises reform," Journal of Monetary Economics, Elsevier, vol. 94(C), pages 94-113.
    18. Jianwei Xu & Panpan Yang & Guangrong Ma, 2017. "Accounting for China's Saving-Investment Imbalance from 2002–2008," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 63(2), pages 234-252, June.
    19. Shenglong Liu & Angang Hu, 2013. "Household Saving in China: The Keynesian Hypothesis, Life-Cycle Hypothesis, and Precautionary Saving Theory," The Developing Economies, Institute of Developing Economies, vol. 51(4), pages 360-387, December.
    20. Song, Zhongchen & Coupé, Tom & Reed, W. Robert, 2021. "Estimating the effect of the one-child policy on Chinese household savings - Evidence from an Oaxaca decomposition," China Economic Review, Elsevier, vol. 66(C).

    More about this item

    Keywords

    Life-cycle Household saving China;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:chieco:v:22:y:2011:i:1:p:108-120. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/chieco .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.