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Authors:

• Shang-Jin Wei
  Columbia Business School

• Xiaobo Zhang
  International Food Policy Research Institute

Chinese households save about 25% of their income, contributing to one of the world's highest current account surpluses. The life cycle theory and precautionary savings motive provide only an incomplete explanation. The paper proposes a new hypothesis: China's high and rising sex ratio imbalance — too many boys relative to girls at birth — due to a combination of a strict family planning policy, parental preference for sons, and inexpensive abortion technologies, may have induced the Chinese to postpone consumption in favor of wealth accumulation. To avoid condemning their sons to life-long bachelorship, families with a boy raise their saving rates. Other families do not reduce their savings rates due to a spillover channel. In panel fixed effects regressions across provinces, local saving rates are found to be strongly positively associated with local sex ratio imbalances, after accounting for demographics and social safety nets, and after using an instrumental variable approach. This effect is stronger in rural areas than in urban areas. Household level data also supports our hypothesis: those with a son tend to save more in regions with a more skewed sex ratio, holding constant various household features. Households with daughters do not reduce their savings in these regions. The increase in sex ratios accounts for about half of the increase in household savings nationally.