Do the poor save more? Evidence from natural disasters and household savings in China

Abstract

One defining feature of China’s economy has been its extremely high domestic savings over the past few decades. This study sheds new light on natural disasters and aims to investigate the impacts of natural disasters on household savings. We find that natural disasters significantly increase household savings. On average, one additional disaster-related unexpected death per 1,000 populations corresponds to an increase of 12.1% in household savings, which is translated into an increased household savings of 724 million Chinese Yuan per county and 4,957 Chinese Yuan per household. Moreover, the effect of natural disasters can be explained through income vulnerability and experience spreading channels. Finally, the heterogeneity analysis reveals that regions with better infrastructure, medical and welfare resources withstand lesser negative disaster shocks on precautionary savings. It thereby emphasizes that a growing economy must be matched with a good design of infrastructure and social facilities to cope with the growing frequency of natural disasters, especially in the developing world.