Famine and the Savings Ratio - Evidence from China

The experience of the Great Famine of 1959-61 is an important part of the explanation for the strikingly high level of household savings in China today. That is one of the findings of research on Chinese savings rates and their historical roots by Heng Chen and Maëlys de la Rupelle, presented at the annual congress of the European Economic Association in Geneva in August 2016.

The researchers find that in Chinese counties where the Great Famine was the most severe, rural households save a higher share of their income than elsewhere.

Analysing data on more than 8,000 rural households surveyed in 2002, they show that the household saving rate is higher in places that faced a higher mortality rate during the Great Famine.

They estimate that a typical increase in famine mortality raises the saving rate by five percentage points, a sizeable impact given that Chinese households saved around 25% of their disposable income in the early 2000s (compared with 7% in the European Union, 5% in the United States and 10% in Mexico). The effect is particularly strong for the poorest households.