The domestic savings and economic growth relationship in China
| Pages | 5-17 |
| DOI | https://doi.org/10.1108/17544400910934315 |
| Date | 06 February 2009 |
| Published date | 06 February 2009 |
| Author | Hooi Hooi Lean,Yingzhe Song |
| Subject Matter | Economics |
Domestic
savings and
economic growth
5
Journal of Chinese Economic and
Foreign Trade Studies
Vol. 2 No. 1, 2009
pp. 5-17
#Emerald Group Publishing Limited
1754-4408
DOI 10.1108/17544400910934315
The domestic savings and
economic growth relationship
in China
Hooi Hooi Lean
School of Social Sciences, Universiti Sains Malaysia, Penang, Malaysia, and
Yingzhe Song
Beijing Hyundai Motor Company, Beijing, People’s Republic of China
Abstract
Purpose – The purpose of this paper is to examine the relationship between the growth of domestic
savings and economic growth in China.
Design/methodology/approach – Cointegration and causality tests cover the country as a whole
and four of selected representative provinces for the period of 1955-2004.
Findings – China’s economic growth is found to have a long-running relationship with household
savings and enterprise savings. Bilateral causality exists between the domestic savings growth and
the economic growth in the short-run. In the long-run, a unidirectional causality exists running from
the domestic savings growth to the economic growth. However, the provinces show a different
statistical relationship between these two variables.
Research limitations/implications – The data are not up to date and are limited to the annual
frequency.
Practical implications – It would be useful to the policy makers to understand the dynamics
involved and where necessary, to make adjustments to the prevailing and future economic policies in
order to achieve the rapid and desired economic development and sustainable economic growth.
Originality/value – The paper assesses the cointegration and causality relationship between the
growth of domestic savings and economic growth in China.
Keywords China, Economic growth, Savings, Government policy
Paper type Research paper
1. Introduction
Solow’s(1956) growth model mentioned thatdeveloping countries with low capital stock
will have access to more rapid growth compared to developed countries, achieving this
by increasing their savings and investment rates. This means that highsavings rates in
developing countries could stimulate their economic growth. Due to the potentially
positive effectof savings, many developing countries especially those in the ThirdWorld
will increase their savings rates in order to push up theirgrowth rates, especially that of
their real gross domestic production (GDP) (Liu and Guo, 2002). The theoretical
framework of these policies is based on the concept that a country’s high savings rate
could increase the amount of creditable capital available, which will subsequently push
up the aggregate investment and then finally achieve the desired economic development
(Stern, 1991). Lin (1992) suggested that the economic development of a country depends
largely on its ability to mobilize the necessary savings to finance capital formation in
order to raise a nation’s productivity. Jappelli and Pagano (1994) also documented the
similar conventional commentthat high savings contributes to high economicgrowth.
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1754-4408.htm
The authors would like to thank the anonymous refere es and the Editor for their insightful
comments and suggestions; and Esmond Byrne for his excellent proofreading. The usual
disclaimer applies.
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