Research On Saving Behavior Of Farm Households In Transitory China

This thesis examines both individual and aggregate saving behavior of Chinese farm households during the transition from central planning to a market economy, especially precautionary motive for saving. At individual level, my empirical approach is to construct estimates of labor income uncertainty (income innovation variation) using household panel data from rural China and then to investigate the relationship between uncertainty and wealth. In a result, I find the first direct evidence of precautionary saving motive and that permanent income has a stable positive effect on wealth accumulation. On aggregate level, I estimate log-linearized and second-order approximation consumption Euler Equations with changes of expected income using aggregate time-series data. The result implies that precautionary saving motives of Chinese urban households are stronger than rural households, which are both statistically significant. In addition, current income is one of main reasons for consumption and saving decision and the model of consumption "random-walk" is refused. Finally, I provide some policy proposals on the basis of results of my empirical analysis: first, it is not much more done by government to strength the stabilization of expected income of farm households; second, establishment of rural social security system and insurance deserve a higher priority on central and local government agendas; third, develop rural financial market to relax liquidity constraints facing farmers.