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Authors:

• Lijing ZHU
  National University of Singapore

• Yuhua SHI

• Reza SIREGAR

The objective of this paper is to bring to light the fact that it is the unusually low youth dependency ratio that has played an important role in giving rise to high saving rates and therefore price stability observed in China for the past 20 years. Within the context of the Mason Life-Cycle model, which emphasizes the impact of demographic as well as economic growth factors on national savings, we conduct two sets of tests: the Granger-Causality test and the Johansen Cointegration test. According to the causality test, the demographic factor exerted little influence on the national saving in the pre-reform period (1955-78), but significant impact in the post-reform period (1979-98). As far as the economic growth factor is concerned, the impact on the national saving is significant for both periods. For the cointegration test, as our result indicates, the low youth dependency ratio has a significantly contribution to the saving rate in China, that is much larger than that of the high GDP growth rates. Also, reforms alone exert a positive effect on the national saving as well.