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The saving–growth–inequality triangle in China

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  • Gu, Xinhua
  • Tam, Pui Sun

Abstract

China's fast growth is perceived as a major determinant of its savings glut that contributes to global imbalances, but China's income inequality has been largely overlooked as the economy moves rapidly toward the Kuznets curve peak. This paper provides a new explanation for the complex issue of Chinese saving using a structural vector autoregressive (SVAR) model. We find that China's growth is positively affected by saving but has a limited effect on saving, that inequality mainly has a negative impact on growth but has a positive impact on saving, and that inequality is a stronger factor than growth in explaining high saving. Therefore, inequality must be mitigated to lower the high saving rate in China, and growth will be unaffected by lowering both inequality and saving.

Suggested Citation

  • Gu, Xinhua & Tam, Pui Sun, 2013. "The saving–growth–inequality triangle in China," Economic Modelling, Elsevier, vol. 33(C), pages 850-857.
  • Handle: RePEc:eee:ecmode:v:33:y:2013:i:c:p:850-857
    DOI: 10.1016/j.econmod.2013.06.001
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    3. 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.
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    7. Xinhua Gu & Bihong Huang & Pui Sun Tam & Yang Zhang, 2015. "Inequality and Saving: Further Evidence from Integrated Economies," Review of Development Economics, Wiley Blackwell, vol. 19(1), pages 15-30, February.
    8. Anping Chen & Nicolaas Groenewold, 2019. "Macroeconomic shocks in China: Do the distributional effects depend on the regional source?," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 62(1), pages 69-97, February.
    9. Anping Chen & Nicolaas Groenewold, 2016. "Output Shocks In China: Do The Distributional Effects Depend On The Regional Source?," Economics Discussion / Working Papers 16-20, The University of Western Australia, Department of Economics.
    10. Melki, Mickael, 2022. "Inequality and investment: The role of institutions," Economic Modelling, Elsevier, vol. 108(C).

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    More about this item

    Keywords

    China; Saving; Growth; Inequality; SVAR; Global imbalances;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • 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
    • J10 - Labor and Demographic Economics - - Demographic Economics - - - General
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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