Population aging and saving: Evidence from China

Saving is a main source of financing capital and R&D investment, which can facilitate economic growth and development. Saving also acts as a buffer against uncertainty and external shocks, which can smooth growth volatility and promote economic growth. Thus understanding the determination of saving is vital for policymaking. This paper evaluates the saving consequence of population aging in China, a fast growing economy that has been experiencing rapid population aging with high saving rates. However, whether and how population aging affects saving remains controversial. Instead of verifying whether population aging increases or decreases saving, this paper takes a step further to examine potential nonlinearity in the nexus, which allows one to address the reason for inconclusiveness. Using China's provincial data over the period 1989-2019, it indeed finds significant existence of nonlinearity. Household saving follows an inverted-U process with population aging. The effect holds for regions with moderate saving rates. For regions with the least and highest saving rates, household saving follows a U-shaped process. Similar results are found for total saving.