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

Author

Listed:
  • Chi-Chur Chao

    (CUHK - The Chinese University of Hong Kong [Hong Kong])

  • Jean-Pierre Laffargue

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

  • Eden S. H. Yu

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 lifecycle 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

  • Chi-Chur Chao & Jean-Pierre Laffargue & Eden S. H. Yu, 2011. "The Chinese saving puzzle and the life-cycle hypothesis: A revaluation," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00645288, HAL.
    • Handle: RePEc:hal:cesptp:hal-00645288
    DOI: 10.1016/j.chieco.2010.09.004
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    References listed on IDEAS

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    16. 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.
    17. Gu, Xinhua & Tam, Pui Sun, 2013. "The saving–growth–inequality triangle in China," Economic Modelling, Elsevier, vol. 33(C), pages 850-857.
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    20. 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.
    21. 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).
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    24. Liu, Lu, 2023. "Mortgage loan and housing market," International Review of Economics & Finance, Elsevier, vol. 83(C), pages 736-749.

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