Risks, Financing Constraints, and High Savings Ratio in the Rural Economy of China: A Model Incorporating Precautionary Savings and Liquidity Constraints

Junlu Ma and Gang Tian ()
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Junlu Ma: Department of Finance, School of Economics, Nankai University, Tianjin 300071, PRC
Gang Tian: Department of Finance, School of Economics, Nankai University, Tianjin 300071, PRC

Frontiers of Economics in China-Selected Publications from Chinese Universities, 2006, vol. 1, issue 1, 112-125

Abstract: This paper makes an in-depth investigation on the phenomenon of high savings rate in the rural economy of China between 1978 and 2003. On the basis of precautionary savings theory, we construct a model incorporating the risks, liquidity constrains, and aging population to explain the existence of high savings rate in the rural economy of China. We measure risks with Gini coefficient and marginal propensity to save. We find that these risk indices are positively associated with the higher savings rate and the higher degree of prudence of rural households. Our findings pose an urgency of the reform of rural financial system and the improvement in social security system in the rural economy of China.

Keywords: rural household savings; risks; precautionary savings; financing constraints (search for similar items in EconPapers)
JEL-codes: D12 E21 O18 (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:fec:journl:v:1:y:2006:i:1:p:112-125

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