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Household Saving, Financial Constraints, And The Current Account In China

Author

Listed:
  • Ayşe İmrohoroğlu
  • Kai Zhao

Abstract

In this article, we present a model that can account for the changes in the current account balance in China since the 2000s. Our results suggest that inadequate insurance through government programs for the elderly and the decline in family insurance due to the one‐child policy led to large increases in the household saving rate. These increases coupled with the financial frictions preventing the household saving from being invested in domestic firms resulted in large current account surpluses until 2008. Relaxation of financial constraints, on the other hand, was responsible for the decline in the current account surplus after 2008.

Suggested Citation

  • Ayşe İmrohoroğlu & Kai Zhao, 2020. "Household Saving, Financial Constraints, And The Current Account In China," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 61(1), pages 71-103, February.
    • Handle: RePEc:wly:iecrev:v:61:y:2020:i:1:p:71-103
    DOI: 10.1111/iere.12417
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    Cited by:

    1. Jingjing Xu, 2024. "Intergenerational transfers in China: What are the patterns of the transfers and when do the transfers occur?," International Studies of Economics, John Wiley & Sons, vol. 19(1), pages 117-150, March.
    2. Chen, Ye & Kumru, Cagri S. & Zhang, Yurui, 2024. "Optimal taxation, differential mortality, and endogenous human capital accumulation in China," China Economic Review, Elsevier, vol. 88(C).
    3. Michael Dotsey, 2019. "Demographic Aging, Industrial Policy, and Chinese Economic Growth," 2019 Meeting Papers 640, Society for Economic Dynamics.
    4. Dur, Ayşe & Glover, Andrew & Rothert, Jacek, 2025. "Uninsurable income risk and the welfare effects of reducing global imbalances," European Economic Review, Elsevier, vol. 179(C).
    5. Michael Dotsey & Wenli Li & Fang Yang, 2019. "Demographic Aging, Industrial Policy, and Chinese Economic Growth," Working Papers 19-21, Federal Reserve Bank of Philadelphia.
    6. Nalini Prasad, 2025. "The Role of Macro‐Economic Policy in Explaining China's Current Account Surplus," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 57(2-3), pages 377-406, March.
    7. İmrohoroğlu, Ayşe & Zhao, Kai, 2022. "Rising wealth inequality: Intergenerational links, entrepreneurship, and the decline in interest rate," Journal of Monetary Economics, Elsevier, vol. 127(C), pages 86-104.
    8. Sarah Chan, 2019. "China’s Narrowing Current Account Surplus: Evolving Trends and Policy Implications," Economic Alternatives, University of National and World Economy, Sofia, Bulgaria, issue 3, pages 345-359, September.
    9. Yuan-Ho Hsu & Hiroshi Yoshida & Fengming Chen, 2022. "The Impacts of Population Aging on China’s Economy," Global Journal of Emerging Market Economies, Emerging Markets Forum, vol. 14(1), pages 105-130, January.
    10. Lee, Hyun & Zhao, Kai & Zou, Fei, 2022. "Does the early retirement policy really benefit women?," Journal of Economic Behavior & Organization, Elsevier, vol. 196(C), pages 330-345.
    11. Congmin Peng & Po-Wen She & Ming-Kun Lin, 2022. "Financial Literacy and Portfolio Diversity in China," Journal of Family and Economic Issues, Springer, vol. 43(3), pages 452-465, September.
    12. İmrohoroğlu, Ayşe & Zhao, Kai, 2018. "The chinese saving rate: Long-term care risks, family insurance, and demographics," Journal of Monetary Economics, Elsevier, vol. 96(C), pages 33-52.
    13. Chen, Zhaoyong & Leung, David & Mai, Joseph, 2025. "A proposed tax reform for China: Enhancing consumption and pension sustainability," China Economic Review, Elsevier, vol. 94(PA).

    More about this item

    JEL classification:

    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)

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