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The Determinants of Household Saving in China: A Dynamic Panel Analysis of Provincial Data


  • We are grateful to Barry Bosworth, Hideki Hayashi, Takako Fujiwara-Greve, Teh-Ming Huo, Insang Hwang, Shinsuke Ikeda, Junichiro Ishida, Miki Kohara, Justin Yifu Lin, Ronald I. McKinnon, Kazuo Ogawa, Hugh Patrick, Masaya Sakuragawa, Shizuka Sekita, Katsuya Takii, Midori Wakabayashi, Xiaoping Wang, Calla Weimer, Tongsheng Xu, Zhihao Yu, Yaohui Zhao, and especially Christopher Carroll, Galina Hale, Aart Kraay, Louis Kuijs, Colin McKenzie, Masao Ogaki, and Etsuro Shioji, and participants of the Seoul Conference on “China and Emerging Asia: Reorganizing the Global Economy,” the Seattle Conference of the Asia-Pacific Economic Association, the Summer Institute of the National Bureau of Economic Research, the Annual Pacific Basin Conference of the Federal Reserve Bank of San Francisco, and the fall meeting of the Japanese Economic Association, seminars at the Osaka School of International Public Policy (OSIPP) of Osaka University, the Asian Public Policy Program of Hitotsubashi University, the China Center for Economic Research of Peking University, the School of Economics of Jiangxi University of Finance and Economics, the Faculty of Economics of Keio University, the Faculty of Economics of Fukuoka University, and the Brookings Institution for their valuable comments, and Horioka is grateful to the Ministry of Education, Culture, Sports, Science and Technology of the Japanese Government for Grant-in-Aid for Scientific Research number 18330068, which supported this research.


In this paper, we conduct a dynamic panel analysis of the determinants of the household saving rate in China using a life cycle model and panel data on Chinese provinces for the 1995–2004 period from China's household survey. We find that China's household saving rate has been high and rising and that the main determinants of variations over time and over space therein are the lagged saving rate, the income growth rate, (in many cases) the real interest rate, and (in some cases) the inflation rate. However, we find that the variables relating to the age structure of the population have the expected impact on the household saving rate in only one of the four samples. These results provide mixed support for the life cycle hypothesis as well as the permanent income hypothesis, are consistent with the existence of inertia or persistence, and imply that China's household saving rate will remain high for some time to come.