Saving behaviour in a transition economy: An empirical case study of rural China

Abstract

Using a large set of household-level survey data, this paper explores determinants of saving behaviour in rural China. The rich specification of the model, necessarily ad hoc, enables consideration of an extensive array of variables. It is found that (a) liquidity constraints, precautionary motives and industrialisation conribute positively to the unusually high saving rate in China; (b) culture is a significant factor in helping explain inter-regional differences in saving rate; (c) the life cycle hypothesis is rejected since a "U-pattern", contrary to the commonly claimed "hump", is discovered; and (d) the permanent income hypothesis is not accepted as wealth is found to be negatively related to savings.