HOUSEHOLD SAVING, FINANCIAL CONSTRAINTS, AND THE CURRENT ACCOUNT IN CHINA

Ayse Imrohoroglu and Kai Zhao

International Economic Review, 2020, vol. 61, issue 1, 71-103

Abstract: In this article, we present a model that can account for the changes in the current account balance in China since the 2000s. Our results suggest that inadequate insurance through government programs for the elderly and the decline in family insurance due to the one‐child policy led to large increases in the household saving rate. These increases coupled with the financial frictions preventing the household saving from being invested in domestic firms resulted in large current account surpluses until 2008. Relaxation of financial constraints, on the other hand, was responsible for the decline in the current account surplus after 2008.

Date: 2020
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https://doi.org/10.1111/iere.12417

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Working Paper: Household Saving, Financial Constraints, and the Current Account in China (2018)
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