November 18, 2010
Juann H. Hung and Rong Qian
This paper uses a large cross-country panel dataset to estimate models of national saving rates and addresses two related issues. First, to what extent can China’s saving rate be explained by models of saving rates? Second, what are the factors responsible for China’s extraordinarily high saving rates?
We find that our benchmark models explain about 72 to 76 percent of China’s national saving rate during 1990-2007, depending on whether China is included in the dataset. China’s national saving rate during that period is higher than the predictions of those models by about 10 to 12 percentage points on average. The predominant driver of the explained portion of China’s high saving rates is China’s relatively low old dependency (the ratio of the population ages 65 and older relative to the population ages 15 to 64). China’s relatively low urbanization, strong economic growth, and weak social safety net are also important factors. In comparison, the high degree of currency undervaluation is a smaller contributor to China’s high saving.