Urban–Rural heterogeneity in the effect of population ageing on the savings rate of urban and rural households in China

Abstract

As the second populous country in the world, China is confronted with the significant and rapid challenge of population ageing. The household savings rate is inevitably impacted by population ageing. Most existing research has been conducted using macro data from 31 provinces in China. However, most of them lacks consideration of urban-rural differences. Furthermore, there are concerns regarding the applicability of using macro data to study household-level microeconomic issues. Against this backdrop, the objectives of this paper are twofold: first, to investigate the effect of population ageing on the savings rates of urban and rural households in China. Second, this work examines whether urban–rural heterogeneity is evident in the impact of population ageing on household savings in China. This paper conducts a regression analysis on pseudo-panel data from 2010 to 2018 in China using micro-level household data from China Family Panel Studies and employing a Feasible Generalized Least Squares model. The key contribution of this paper is converting cross-sectional microdata into pseudo-panel data, enabling regression analysis within a logical and rigorous theoretical framework. It addresses limitations on existing literature, which predominantly relies on macro data. Additionally, the study takes into account heterogeneity, individual differences, and multicollinearity in regression model selection, thereby remedying the shortcomings of model selection in the majority of the existing literature based on pseudo-panel data. The findings reveal the heterogeneity of household savings rates in urban and rural China, as well as the heterogeneity of the impact of population ageing on the savings rates of urban and rural households in China. Specifically, population ageing significantly reduces household savings rates in both China and rural areas, but significantly increases the savings rates of urban households. Moreover, in the context of population ageing, urban household savings rates are significantly lower than those in rural areas. Policymakers should strengthen urbanization efforts to reduce the urban-rural disparity. In addition, to mitigate the impact of population ageing on savings rates, policymakers should encourage fertility in order to improve household demographics. They should also strengthen investment in education to reduce the burden of household expenditure on education. In addition, policymakers should promote entrepreneurship, provide job training in order to increase household incomes.