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

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journal

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Author(s)

  • Chi-Chur Chao
  • Jean-Pierre Laffargue
  • Eden Yu

Related Research Unit(s)

Detail(s)

Original languageEnglish
Pages (from-to)108-120
Journal / PublicationChina Economic Review
Volume22
Issue number1
Publication statusPublished - Mar 2011

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. © 2010 Elsevier Inc.

Research Area(s)

  • China, Household saving, Life-cycle

Citation Format(s)

The Chinese saving puzzle and the life-cycle hypothesis : A revaluation. / Chao, Chi-Chur; Laffargue, Jean-Pierre; Yu, Eden.

In: China Economic Review, Vol. 22, No. 1, 03.2011, p. 108-120.

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journal