Essays in Household Saving Behavior and Effects of Growth.

Abstract

Chapter 1: Keeping Up with the Zhangs - Household Saving Behavior as a Function of Relative Wealth

Economic research has established that wealthier households have higher average saving rates. Using Chinese household survey data, I demonstrate that the determinant of household saving rates is relative, not absolute, wealth. Specifically, households earning more than the local average save a larger fraction of their income.

I argue that standard economic theory does not explain such behavior. I propose a utility function that incorporates relative consumption and utility from wealth. This function accounts for the higher rates of saving by the relatively rich, and predicts the observed correlation between economic growth and the aggregate saving rate.

Chapter 2: Growth and Saving in an Open Economy Structural Change Life Cycle Model - an Investigation

This paper examines the ability of a life-cycle model, coupled with structural change, to explain the observed high saving rates in economies undergoing prolonged rapid growth, i.e. a catching-up process. The model is integrated with two additional elements: future growth uncertainty and credit constraints.

I find that structural change greatly enhances the life cycle model's ability to explain the high saving rates accompanying rapid growth, and that growth uncertainty and credit constraints are contributing factors as well. In addition, structural change allows the model to replicate the observed increasing profile of household life cycle expenditure.

Chapter 3: Future Shock - The Effect of Rapid Growth on Earning Ability with Age

Investigating the effect of prolonged rapid growth on the earning-age cross-sectional profile, I show, using Chinese data, that the profile of individuals in high growth locations is distinct from those in low growth ones. I use spatial variation in growth rates across China to identify the effect. In addition, I show that workers in state owned enterprises are less affected than their peers in the private sectors. In conclusion, I find that high growth seems to decrease the earning ability of older cohorts compared to the young.