The Chinese Saving Puzzle and the Life-Cycle Hypothesis

Franco Modigliani; Shi Larry Cao

doi:10.1257/002205104773558074

The Chinese Saving Puzzle and the Life-Cycle Hypothesis

Franco Modigliani¹; Shi Larry Cao²

¹ Institute Professor Emeritus, Massachusetts Institute of Technology. · ² Munder Capital Management; formerly with People's Bank of China and MIT.

Journal of Economic Literature 2004

China's per capita income ranks below 100th in the world. Its saving rate, however, has been one of the highest worldwide in recent decades. In this paper, we attempt to explain the seeming paradox within the framework of the Life-Cycle Hypothesis developed by Franco Modigliani. The key LCH variables are income and population growth. Our results based on data we put together from official sources show that income growth has been the dominant factor behind the dramatic increase in China's saving rate, as predicted by the LCH. Demographic structure and inflation also had significant impact on the fluctuations of the saving rate.

DOI: 10.1257/002205104773558074
Volume: 42 (1)
Pages: 145-170
Language: en
Export: BibTeX
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