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Precautionary Savings by Natives and Immigrants in Germany

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  • Matloob Piracha
  • Yu Zhu

Abstract

This paper analyses the savings behaviour of natives and immigrants in Germany. It is argued that uncertainty about future income and legal status (in case of immigrants) is a key component in the determination of the level of precautionary savings. Using the German Socio-economic Panel data it is shown that, although immigrants have lower levels of savings and are less likely to have regular savings than natives, the gap is significantly narrowed once we take loan repayments and remittances into account. Moreover, we find that marginal propensity to save for immigrants is about 40% higher than that for natives. We then exploit a natural experiment arising from a change in nationality law in Germany in 2000 to estimate the importance of precautionary savings. Using a difference-in-differences approach, we find that the easing of the requirements for naturalization has caused significant reductions of savings and remittances for immigrants as a whole, in the magnitude of 13% and 29% respectively, comparing to the pre-reform period. Our parametric specification shows that the introduction of the new nationality law reduces the gap between natives and immigrants in marginal propensity to save by 40% to 65%, depending on the measure of savings used. These findings suggest that much of the differences in terms of the savings behaviour between natives and immigrants are driven by the precautionary savings arising from the uncertainties about future income and legal status rather than cultural differences.

Suggested Citation

  • Matloob Piracha & Yu Zhu, 2007. "Precautionary Savings by Natives and Immigrants in Germany," SOEPpapers on Multidisciplinary Panel Data Research 33, DIW Berlin, The German Socio-Economic Panel (SOEP).
  • Handle: RePEc:diw:diwsop:diw_sp33
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    References listed on IDEAS

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    1. Dustmann, Christian, 1997. "Return migration, uncertainty and precautionary savings," Journal of Development Economics, Elsevier, vol. 52(2), pages 295-316, April.
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    8. Christopher D. Carroll & Byung-Kun Rhee & Changyong Rhee, 1994. "Are There Cultural Effects on Saving? Some Cross-Sectional Evidence," The Quarterly Journal of Economics, Oxford University Press, vol. 109(3), pages 685-699.
    9. Catalina Amuedo-Dorantes & Susan Pozo, 2006. "Remittances as insurance: evidence from Mexican immigrants," Journal of Population Economics, Springer;European Society for Population Economics, vol. 19(2), pages 227-254, June.
    10. Catalina Amuedo-Dorantes & Susan Pozo, 2002. "Precautionary Saving by Young Immigrants and Young Natives," Southern Economic Journal, Southern Economic Association, vol. 69(1), pages 48-71, July.
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    Cited by:

    1. Mahuteau, Stephane & Piracha, Matloob & Tani, Massimiliano, 2010. "Selection Policy and Immigrants' Remittance Behaviour," IZA Discussion Papers 4874, Institute for the Study of Labor (IZA).
    2. Hulya Ulku, 2012. "Remitting Behaviour of Turkish Migrants: Evidence from Household Data in Germany," Urban Studies, Urban Studies Journal Limited, vol. 49(14), pages 3139-3158, November.
    3. Giulia BETTIN & Riccardo LUCCHETTI, 2012. "Intertemporal remittance behaviour by immigrants in Germany," Working Papers 385, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
    4. Saurer, Judith & Felfe, Christina, 2014. "Granting Birthright Citizenship - A Door Opener for Immigrant Children's Educational Participation and Success?," Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100548, Verein für Socialpolitik / German Economic Association.
    5. Matloob Piracha & Teresa Randazzo, 2011. "Remittances and Return Migration," Studies in Economics 1118, School of Economics, University of Kent.
    6. Kaczmarczyk, Pawel, 2013. "Money for Nothing? Ukrainian Immigrants in Poland and their Remitting Behaviors," IZA Discussion Papers 7666, Institute for the Study of Labor (IZA).
    7. Augustin de Coulon & Dragos Radu & Max Friedrich Steinhardt, 2016. "Pane e Cioccolata: The Impact of Native Attitudes on Return Migration," Review of International Economics, Wiley Blackwell, vol. 24(2), pages 253-281, May.
    8. Fabian Gleisner & Andreas Hackethal & Christian Rauch, 2010. "Migration and the retail banking industry: an examination of immigrants' bank nationality choice in Germany," The European Journal of Finance, Taylor & Francis Journals, vol. 16(5), pages 459-480.
    9. Christian Dustmann & Tommaso Frattini, 2014. "The Fiscal Effects of Immigration to the UK," Economic Journal, Royal Economic Society, vol. 124(580), pages 593-643, November.
    10. Katarzyna Budnik, 2011. "Temporary migration in theories of international mobility of labour," Bank i Kredyt, Narodowy Bank Polski, vol. 42(6), pages 7-48.
    11. Piracha, Matloob & Tani, Massimiliano & Tchuente, Guy, 2017. "Immigration Policy and Remittance Behaviour," GLO Discussion Paper Series 94, Global Labor Organization (GLO).
    12. Borodak, Daniela & Piracha, Matloob, 2013. "Who Moves and For How Long: Determinants of Different Forms of Migration," IZA Discussion Papers 7388, Institute for the Study of Labor (IZA).
    13. Yu Zhu & Zhongmin Wu & Meiyan Wang & Yang Du & Fang Cai, 2011. "Do Migrants Really Save More? Understanding the Impact of Remittances on Savings in Rural China," Journal of Development Studies, Taylor & Francis Journals, vol. 48(5), pages 654-672, June.
    14. Merike Kukk, 2014. "Distinguishing the components of household financial wealth: the impact of liabilities on assets in Euro Area countries," Bank of Estonia Working Papers wp2014-2, Bank of Estonia, revised 10 Oct 2014.
    15. Guin, Benjamin, 2017. "Culture and household saving," Working Paper Series 2069, European Central Bank.
    16. Bettin, Giulia & Paçacı Elitok, Seçil & Straubhaar, Thomas, 2012. "Causes and consequences of the downturn in financial remittances to Turkey: A descriptive approach," Edition HWWI: Chapters,in: Turkey, migration and the EU, pages 133-166 Hamburg Institute of International Economics (HWWI).
    17. Christina Felfe & Judith Saurer & Anita Fichtl, 2015. "Deutsch ab Geburt: Einfluss von Staatsangehörigkeit auf Bildungsbeteiligung und Bildungserfolg," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 68(24), pages 17-22, December.
    18. Vaira-Lucero, Matias & Nahm, Daehoon & Tani, Massimiliano, 2012. "The Impact of the 1996 US Immigration Policy Reform (IIRIRA) on Mexican Migrants' Remittances," IZA Discussion Papers 6546, Institute for the Study of Labor (IZA).
    19. Hulya Ulku, 2012. "Determinants of the Savings and Fixed Asset Holdings of Turkish Migrants in Germany," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 48(1), pages 83-99, January.
    20. Felfe, Christina & Kocher, Martin & Rainer, Helmut & Saurer, Judith & Siedler, Thomas, 2018. "More Opportunity, More Cooperation? The Behavioral Effects of Birthright Citizenship on Immigrant Youth," Economics Series 340, Institute for Advanced Studies.
    21. Emmanuel K.K. Lartey, 2016. "The Cyclicality Of Remittances In Sub-Saharan Africa," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 41(1), pages 1-18, March.
    22. Hulya Ulku, 2012. "Determinants of the Savings and Fixed Asset Holdings of Turkish Migrants in Germany," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 48(1), pages 83-99, January.

    More about this item

    Keywords

    migration; remittances; savings; uncertainty;

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration

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