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The Long-run Relationship between Savings and Investment in Transition Economies: Empirical Evidence from China

Mensah, Richlove LU (2012) EKHR81 20121
Department of Economic History
Abstract
This study examines the underlying patterns of savings and investments in China for the period 1978 – 2008. The institutional changes that occurred as a result of the 1978 economic reforms programme brought about profound changes to the characteristics of savings and investments in China. The paper finds that household savings while high, do not explain China’s high savings rate as a whole. High savings by enterprises and the central government has been the driving force behind China’s high savings rate. Investment on the other hand is primarily financed by enterprise savings with FDI playing a relatively modest role. Using data from the World Bank, the study also revisits the savings and investment nexus as postulated by Feldstein and... (More)
This study examines the underlying patterns of savings and investments in China for the period 1978 – 2008. The institutional changes that occurred as a result of the 1978 economic reforms programme brought about profound changes to the characteristics of savings and investments in China. The paper finds that household savings while high, do not explain China’s high savings rate as a whole. High savings by enterprises and the central government has been the driving force behind China’s high savings rate. Investment on the other hand is primarily financed by enterprise savings with FDI playing a relatively modest role. Using data from the World Bank, the study also revisits the savings and investment nexus as postulated by Feldstein and Horioka (1980). Among the key results, it is found that savings and investment cointegrated in China for the period 1978 – 2008 but the direction of causality between the two variables is not clear. There is strong evidence of causality in both directions. (Less)
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author
Mensah, Richlove LU
supervisor
organization
course
EKHR81 20121
year
type
H1 - Master's Degree (One Year)
subject
keywords
Savings, investment, China, institutions, economic reforms, cointegration, Feldstein and Horioka puzzle, capital mobility
language
English
id
3053537
date added to LUP
2012-10-08 12:54:49
date last changed
2012-10-08 12:54:49
@misc{3053537,
  abstract     = {This study examines the underlying patterns of savings and investments in China for the period 1978 – 2008. The institutional changes that occurred as a result of the 1978 economic reforms programme brought about profound changes to the characteristics of savings and investments in China. The paper finds that household savings while high, do not explain China’s high savings rate as a whole. High savings by enterprises and the central government has been the driving force behind China’s high savings rate. Investment on the other hand is primarily financed by enterprise savings with FDI playing a relatively modest role. Using data from the World Bank, the study also revisits the savings and investment nexus as postulated by Feldstein and Horioka (1980). Among the key results, it is found that savings and investment cointegrated in China for the period 1978 – 2008 but the direction of causality between the two variables is not clear. There is strong evidence of causality in both directions.},
  author       = {Mensah, Richlove},
  keyword      = {Savings,investment,China,institutions,economic reforms,cointegration,Feldstein and Horioka puzzle,capital mobility},
  language     = {eng},
  note         = {Student Paper},
  title        = {The Long-run Relationship between Savings and Investment in Transition Economies: Empirical Evidence from China},
  year         = {2012},
}