The Studies On Rural Households' Precautionary Saving Behavior:Based On Evidence From Zhejiang Province

Since the economic reform started in the late1970s, China's economic growth spurred by high level of investment has been accompanied by the phenomenon that saving rate keeps increasing over years, which is named as "the Chinese Saving Puzzle". At national level, China's national savings rate increased from37.9percent to52.6percent during the period of1978to2010, and rose by15percentage points simply after2000. At household level, despite of low income level, low interest rate and high expectation of income growth, the per capita saving rates of Chinese urban and rural households have risen from9.4percent and13.1percent to29.5percent and26.0percent, respectively.Compared to government and enterprise sectors, it is more challenging to explain household sector's saving behavior, which is comprehensively affected by multiple motives. On one hand, urban and rural households go through different experiences in the course of economic and institutional transformations, and it is necessary to analyze their saving behaviors separately. On the other hand, precautionary motive is relatively sensitive to uncertainty generated by dual transformations. And households intend to rely more on precautionary saving than other risk management and coping strategies, because the transformations do not impair the underlying institution of precautionary saving. Therefore, with an annual rural household survey from Zhejiang province spanning1986to1991and1995to2006, the thesis aims to investigate rural households'precautionary saving behavior from the perspective of risk management. This thesis includes the following four parts:The first part reviews rural households'risk management and coping strategies in developing countries, in order to explicitly interpret the perspective of risk management, and set up a broad-vision background for the studies on Chinese rural households'precautionary saving behavior. This chapter starts from two mechanisms on which risk leads to poverty, describes the principal sources of risk faced by rural households, and extracts three characteristics to calibrate various sources of risk. Afterwards it reviews theoretical foundation and empirical evidence of seven prime risk management and coping strategies as well as the simultaneous applications and interactions of those strategies. The subsequent three empirical parts are all based on the conceptual framework laid in this chapter.In the angle of dramatic change on rural households'income structure to observe economic and institutional transformations from microeconomic level, the second part estimates quantitatively the strength of their precautionary saving by testing the hypothesis of the buffer-stock model, which is the latest development of the intertemporal consumption theory. We find that rural households do hold wealth to mitigate income risk. The results of two simulations indicate that when income variability increases by1/2standard deviation, for rural household at the mean level of wealth, the proportion of precautionary saving in total net wealth will rise up by20.2percent; and if all income risk is eliminated, the aggregate wealth of all rural households will drop by71.7percent.Selecting the perspective of rural household's production portfolio turning from diversification to specialization, the third part tests two hypotheses:income diversification can reduce rural households'exposure to income risk; and there is a substitutional relationship between income diversification and precautionary saving. Based on the economic growth theory of specialization under uncertainty, this chapter first describes changing tendency of rural households'income portfolio, and checks its robustness in four cases. Then it tests the hypothesis by estimating the determinants of income diversification that one of the motivations to diversifying income is to mitigate income variability. At last, the paper tests the hypothesis that the extent of income diversification is negatively correlated to precautionary saving by introducing the interactive term of income variability and income diversification into the wealth ratio equation. The results indicate that rural households in the Zhejiang province have switched their production portfolios from diversification to specialization during the period of1986to2006, with the year of1989as the turning point. And given the level of income variability, the rural households with higher extent of income diversification reduce their holdings of precautionary saving. This chapter offers another explanation for rural households'high strength of precautionary saving besides reasons given in the last chapter.Choosing as the cutting point the phenomenon that increased proportion of rural households are engaged in the labor market, the fourth part tests two hypotheses:rural households apply labor supply adjustment as self-insurance; and there is a substitutional relationship between labor supply flexibility and precautionary saving. Based on the theory of labor supply decision under uncertainty, this chapter first constructs the time-varying measures of production risk, price risk, and health risk. Then it tests the hypothesis that rural households faced will increase their time of work in face of risks as self-insurance by estimating the time-of-work equation. At last, the paper tests the hypothesis that labor supply adjustment is negatively correlated with precautionary saving by estimating the wealth ratio equation with the interactive terms of risks and time-of-work. The results indicate that rural households increase time of work to mitigate instantaneous and ex post production risk. Given the level of production risk, rural households who increase their time of work reduce their holdings of precautionary saving.The innovation of this thesis lies in that it interprets a multi-perspective picture of rural households'precautionary saving behavior by selecting three phenomena as the cutting points to reflect the background of economic and institutional transformations. As the dual transformations impair the access to other risk management and coping strategies, rural households rely more on precautionary saving. With rural households' income portfolio switching from diversification to specialization, they give up income diversification and turn to precautionary saving as self-insurance. The gradual integration of the labor market offers an effective way to insulate against risk, rural households can increase time of work as an alternative to holding precautionary saving.