"Life Cycle" Hypothesis of Saving: Aggregate ... - Arabictrader.com

1998
1993
1988
1983
1978
1973
1968
1963
1958
1953
174 The Life-Cycle Hypothesis
Saving ratio
0.40
0.35
0.30
0.25
0.20
0.15
0.10
0.05
0.00
–0.05
Household saving ratio
Per capita income in 1950 Yuan
700
600
500
400
300
200
100
0
Year
Figure 6.1
China’s household saving ratio and per-capita income: 1953–2000
Since it is widely believed that the standard Keynesian theory may play an
important part in explaining behavior pertaining to saving in at least the
low-income nations, we include a comparison of the results of the LCH and the
Keynesian model.
2 Basic Data
Table 6.1 summarizes the income and saving information on China for the period
1953 to 2000. It is important to keep in mind that personal saving (see data appendix)
is not measured as (disposable) income minus consumption as is conventional
in the national incomes account (NIA). This is due to the unavailability of
the required data. In this case, we use an alternative approach that, conceptually,
should yield an estimate of NIA saving, except for measurement errors. It consists
of measuring the (annual) increase in personal wealth that results from personal
saving. Our estimated calculations to show the increase in personal wealth,
W(t) - W(t - 1), are the sum of two components:
1. The first is the increase in the holdings of a list of intangible assets, A(t) -
A (t - 1). We have endeavored to make the list of relevant assets as comprehensive
as possible, a task facilitated by the very limited choices available during