High Savings Rate Research Articles

A New Approach to the Consumption Society: Frugalism and Financial Freedom

Frugalism as financial freedom and anti-consumer society movements does not exist until 2000, moving from America to Europe and now to Turkey. Frugalism is the reduction of expenditures without reducing the basic needs to gain financial freedom and early retirement. He aims intense financial planning, catching a high savings rate (between ages 25 and 40) at the very beginning of the career, and declaring financial freedom in the future (after 40). Frugalist is against the unnecessary spending of the consumer society, which are inflated by advertising, the restricted right to retirement when aging, and the way of life on unhealthy and disrespectful to the environment. Frugalism matures the person, and questions such as happiness, the meaning of life, long-term goals, time, money, and consumption. Frugalism finds himself in Stoic which emphasizes the differences between pleasure and happiness. Hedonism proposes to maximize pleasure in order to have the best life. But Stoicism rejects because pleasure is one dimension of happiness. An individual does not need external motivators (possessions of goods and compliments of others) to be happy. Healthy life, stress-free environment, making decisions independently are real luxuries. This blissing depends on financial independence which depends on frugal lifestyle. In the article, the concept of frugalism is investigated from philosophical, psychological, sociological, and economic points of view.

AUTOMATIC NOZZLE CONTROL SYSTEM WITH ULTRASONIC SENSOR FOR ORCHARD SPRAYERS

Spraying fruit trees with orchard sprayers cause some limitations, as well as problems such as wasting the drugs by spraying spaces among the trees, especially in some cases where the distance among the trees are high. Accordingly, overmuch drugs are used, and harmful substances are added to the soil. Moreover, pesticide ruins that pass from the soil cause health problems. Consequently, production costs increase and correspondingly, efficiency decreases. In this experimental study, ultrasonic sensors are placed on the right and left surfaces of the machine facing the tree. The pesticides are sprayed as long as an object is detected within a certain distance with the help of these sensors. Spraying is automatically stopped when the object is not detected. The developed system consists of an electronic control unit, solenoid valves and ultrasonic sensors, controlled by a microcontroller. High rates of savings are achieved in pesticide consumption and the addition of harmful substances to the soil is prevented thanks to this automatic control system. Solid structure enables practical mounting on existing manually controlled sprayers.

Estimating the effect of the one-child policy on Chinese household savings - Evidence from an Oaxaca decomposition

Researchers have long puzzled over China's high household savings rate. Some have hypothesized that the explanation lies with China's One-Child Policy (OCP). According to this hypothesis, faced with fewer children to support them in their old age, Chinese parents increased their savings to finance retirement. Previous research relied on empirical studies of the relationship between children and saving behavior. However, all of these studies based their analysis on data after the OCP was implemented. Their implicit counterfactual for China without an OCP was households with multiple children living in an OCP environment. In contrast, we compare Chinese people with people from regions that do not have restrictive population policies. These regions share many cultural, demographic and economic characteristics with China that suggest they can be used as a counterfactual for China. This approach enables us to employ a Blinder-Oaxaca decomposition procedure to identify the different channels by which children could affect savings. Our results suggest that the OCP decreased households' proclivity to save. The estimated effects are generally small, in the range of one to two percentage points. We find no evidence to indicate that the OCP can explain China's high saving rate. An implication of our findings is that they suggest that the recent relaxation of the OCP cannot be counted upon to substantially boost Chinese consumption.

Moving Beyond Lewis: Employment and Wage Trends in China\u2019s High- and Low-Skilled Industries and the Emergence of an Era of Polarization

One of the defining features of China’s economy over the two decades between 1995 and 2015 was the persistent rise of wages for workers and professionals in nearly every segment of the economy—with wage rates for labor-intensive jobs in manufacturing, construction, and the informal service sector rising the fastest. Recently, however, the economic environment in China has begun to change, including changes in both employment and wages. We identify recent employment/wage trends throughout China’s economy and postulate the sources of these trends as well as possible future consequences if they continue. We use official, nationally aggregated data to examine employment and wages in multiple sectors and industries. Our findings indicate that China may have entered a new phase of economic development in the mid-2010s. According to the data, in recent years, wage growth has begun to polarize: Rising for professionals employed in formal skill-intensive industries; and falling for workers in the informal labor-intensive service sector. We attribute this increase in skill-intensive wages to an increase in demand for skill-intensive employment, due to the emergence of a large middle class in China, for whom the demand for high technology, finance, banking, health, and higher education industries is increasing while, at least in the recent short term, the supply of experienced, high-skilled professionals has not kept up. The employment/wage trend in the informal (low-wage) service sector, however, is following a different pattern. While there is a rising demand for services in China’s economy, the growth, due to a number of factors (e.g., large shares of GDP targeted by policymakers to investment; high rates of savings by consumers), is relatively slow. In contrast, due to a number of economic forces, including globalization and automation, the supply of labor into the service sector of the informal economy is being fueled by the flow of labor out of manufacturing and construction (two industries that that have experienced employment declines since 2013). These supply and demand trends, in turn, are leading to the fall in the growth rate of wages in the informal service sector. We conclude by discussing the possible longer-term consequences of these emerging polarization trends based on an examination of recent experience with wage polarization occurring in both middle- and high-income countries, as well as its consequences. We also present policy recommendations for greater investment in education and human capital, as well as for the development of a more comprehensive set of social safety nets for different segments of China’s population.

Analysis of twin deficits hypothesis in Indonesia and its impact on financial crisis

This study aims to analyze the relationship between the current account and budget deficit (twin deficits hypothesis), measuring the account performance and other macroeconomic indicators in predicting the debt crisis in Indonesia. Furthermore, the data used for hypothesis was obtained from 2004q1-2017q4, followed by the application of the ARDL method, while values based on debt crisis were taken from the year 1981–2017, and indicators performance measurement required the use of Early Warning System (EWS) method, which was conducted through Quadratic Probability Score (QPS), and Global Squared Bias (GSB). The results indicate a long-term positive relationship between the current account and budget deficit (twin deficits), while the short-term studies reveal a negative association termed twin divergence, which occur on instances where a country has high savings rate. Furthermore, it was established that the current account deficit towards predicting the debt crisis in Indonesia was of a low performance, and the leading macroeconomic indicators include short-term debt-foreign exchange reserves, the temporary debt-total external type, M2-foreign exchange reserves, inflation, IMF, and domestic credit-GDP. Therefore, the EWS model possesses 60% predictive abilities and an NTSR of 0.25, where the QPS value obtained was 0.373, and that of GSB was 0.005.

A Structural Model of Mental Accounting

We construct and estimate a formal economic model of mental accounting where utility maximizing consumers facing rationality constraints infrequently update their desired expenditure budgets for different categories of consumption. We use latent Bayesian inference to estimate the model on a unique dataset of consumer-level weekly consumption expenditure in order to infer mental accounting decision variables. Our formulation reconciles the variability of observed high-frequency consumption expenditure patterns. We find that consumers optimally re-evaluate only about 25% to 50% of their expenditure budgets each period, providing empirical evidence that consumers regulate their expenditure behavior with mental accounting heuristics. Compared to two separate models where consumers face no cognition frictions or engage in full, sticky mental accounting, the model with both consumer- and time-dependent heterogeneous rationality constraints fits the data best. Counterfactually, we find that implementing policies which encourage consumers to stick with weekly expenditure budgets leads to, on average, higher savings rates and welfare improvements.

Impact of Savings on Capitalization: Case of Southeast Asian Economies

The study analyses the economics intuition that the domestic savings may determine the investments in a country. The assumption is tested on domestic savings between 1980 and 2015 in Southeast Asia economies and Hungary in a panel regression framework. The hypothesis is that domestic savings stimulate economic growth through investment financing and, thus, the high savings rate observed in Southeast Asian countries can contribute to the outstanding GDP growth in the region. The tests sort out the significant determinants of investments. Granger causality test is implemented as a control test for significance of determinants. The analysis successfully indicates the significance of domestic savings beside other variables, and confirms the hypothesis, namely, the domestic savings affect investments and indirectly the economic growth, while FDI does not prove to be significant.

Demographic structures, savings, and international capital flows

This paper investigates how the different demographic characteristics of two countries will drive the flow of capital between them, as inhabitants of the longer-lived nation have a higher savings rate than do those with the shorter lifespan. It is motivated by the recent US experience during which its net foreign asset position declined dramatically, while simultaneously its longevity has fallen increasingly below that of other developed G7 economies. Our contribution is to address the issue by introducing empirically based survival (mortality) functions into a traditional two country macrodynamic framework. In doing so, we eliminate some of the unsatisfactory aspects associated with the traditional two country representative agent model. The sensitivity of the capital flows and the resulting net foreign assets of the two economies to key structural characteristics, and their consequences for savings are emphasized.

The Intergenerational Impact of China's New Rural Pension Scheme

The Intergenerational Impact of China's New Rural Pension Scheme

Population Aging, Household Savings and Asset Prices: A Study Based on Urban Commercial Housing Prices

Currently, China’s aging population, high savings rate and high housing asset prices coexist, which has become a hot issue in academic research. First, considering the life-cycle hypothesis and overlapping generations model, asset prices are negatively correlated with the population dependency ratio and positively correlated with household savings. Second, based on census data from prefecture-level cities, a pooled regression model and two-stage least squares (2SLS) are used in this empirical research. The child dependency ratio was found to have a significant negative impact on housing prices, while the elderly dependency ratio had a positive impact on housing prices. The positive relationship between household savings and housing prices is highly significant. Finally, the interaction analysis shows that the impact of population aging on housing prices differs under different levels of household savings; thus, population aging affects housing prices through household savings, and the mediator dilutes and weakens this impact. The elderly generation’s release of savings could gradually inhibit housing prices. Population aging causes long-run downside risks but not a market meltdown.

Emergent Inequality and Endogenous Dynamics in a Simple Behavioral Macroeconomic Model

Standard macroeconomic models assume that households are rational in the sense that they are perfect utility maximizers, and explain economic dynamics in terms of shocks that drive the economy away from the steady-state. Here we build on a standard macroeconomic model in which a single rational representative household makes a savings decision of how much to consume or invest. In our model, households are myopic boundedly rational heterogeneous agents embedded in a social network. From time to time each household updates its savings rate by copying the savings rate of its neighbor with the highest consumption. If the updating time is short, the economy is stuck in a poverty trap, but for longer updating times economic output approaches its optimal value, and we observe a critical transition to an economy with irregular endogenous oscillations in economic output, resembling a business cycle. In this regime households divide into two groups: Poor households with low savings rates and rich households with high savings rates. Thus inequality and economic dynamics both occur spontaneously as a consequence of imperfect household decision making. Our work here supports an alternative program of research that substitutes utility maximization for behaviorally grounded decision making.

Tightening Belts to Buy a Home: Consumption Responses to Rising Housing Prices in Urban China

This paper measures the impact of housing price changes on household consumption at the city level using the universe of credit and debit card transactions in China from 2011 to 2013. In sharp contrast to the literature on the U.S. housing market, our analysis shows a large and negative housing price elasticity of consumption: a 10% increase in housing prices would lead to a 9.1% reduction in non-housing spending. We argue that the negative elasticity is driven by the combination of a strong investment incentive in housing and heavy borrowing constraints faced by households. This is corroborated by the finding that households increase their savings as housing prices increase. Relative to the existing literature, our analysis helps to better explain how low- and middle-income households adapt to the limited investment venues and surging housing prices in the context of persistently high savings rates.

The Great Transformation East

The objective of this paper is to identify the common factors that enable the East Asian economies to become developed in the post-World War II period. The East Asian economies have been able to take advantage of the open global economy. They all have sound economic fundamentals — a high domestic savings rate, the existence of abundant surplus labour, and investment in intangible capital — which provide the necessary domestic conditions for an economy to grow and prosper. They have also been able to maintain domestic macroeconomic stability and a relatively low rate of inflation, which are essential for the stability of the exchange rate and the success of an export promotion policy. They have all adopted export promotion, as opposed to import substitution, economic development policy, capitalising on their comparative advantages and using the exchange rate as one of the instruments. Exports also provided the initial growth in the aggregate demand for these economies. Finally, the continuity of governance has been an important factor in the early stage of development of these economies as it facilitates not only long-term planning but also faithful implementation of the plan once adopted.

Analysis of Trends in Gross Domestic and Household Savings and its Components in India

Abstract India is having a long-term oriented culture where people are more focused on their future rather than present. Due to this the savings rate in India has always remain at a significant level. India’s savings performance has been quite impressive in a cross-country context. India’s gross domestic savings rate in the recent period is comparable to Indonesia, Thailand and Korea, much lower than that of China, Malaysia and Singapore but much higher than that of many other emerging and advanced economies. India ranked 2nd in terms of gross domestic savings among top 10 economies of the world in the year 2015, just below that of China. The gross domestic savings which stood at around 23 per cent in 1990 has reached around 35 per cent in 2015, well above the world average of 23.5 per cent. Various factors which resulted in an increase in gross domestic savings rate are rapid economic growth, large scale migration of rural population to urban area, Rise in income of government employees after 6th pay commission, persistence of saving habits among households, awareness programs by government and financial institutions etc. Household savings has always remained a major component of gross domestic savings followed by private corporate savings and public sector savings. It was the result of high savings rate that the Indian economy stand strong during the global recession of 2008. During the tenth five year plan i.e. from 2002-2007 the increasing in gross domestic savings was maximum among all. Bank deposits have always remain the most preferred avenue for savings for households. Total deposits in Indian banks crossed Rs100 billion mark in 2017.

Causes of Voluntary Dropout of Microfinance Clients in Bangladesh

The study of the causes of the MFI clients’ drop-outs conducted through a survey on 30 dropped out clients with the help of structured questionnaire revealed that there are not too many strong reasons for dropout. The clients and their family and relatives are found quite happy with the MFI loan amount, interest rate, and peer guarantee system.
 The responses show that clients disinterest to take another loan is the most important cause of dropout. Other significant causes of dropouts are linked with stringent product features, especially the loan repayment procedures, which include no need for another loan, non-negotiable installment size, short repayment intervals, limited grace period, high interest rate, personal solvency, high savings rate, and strict overdue payment policy. On the other hand the least important causes of dropouts are non-beneficial savings scheme, more expensive than traditional money lenders, family or relatives’ disapproval, inflexible loan amount to business requirements, more expensive than other MFIs, the peer guarantee system, narrow range of loan packages.

Output volatility and savings in a stochastic Goodwin economy

Both the public and the academic discourse of the post-crisis era have produced most controversial views concerning adequate national savings rates. We add to this discussion by analyzing the role of the savings rate for the dynamics of an economy embedded in a turbulent environment. To this end we study the dynamics of a stochastic Goodwin-type business cycle model using a mix of analytical- and simulation techniques. Focussing on a region of the parameter space that exhibits multi-stability, we apply the stochastic sensitivity function technique and Lyapunov exponents to scrutinize the dynamics of the stochastic economic system. We find that the savings rate affects the sensitivity of the economic system, as well as the distribution of economic states. The sensitivity of the system is inversely related to the level of the savings rate. Specifically, we demonstrate that high volatility phases of the cycle vary as the savings rate is changed. For low (high) levels of the savings rate the stochastic Goodwin economy will remain relatively often in sensitive (robust) states. Our theoretical investigation suggests that strategies involving reasonably high national savings rates might help to avoid the negative welfare implications of sensitive and even chaotic income dynamics along the cycle.

The relationship between economic growth and employee provident fund: an empirical evidence from Malaysia

Over the years, Malaysia has progressively accelerated its economic development, thanks to the adherence to high rates of domestic savings and investment. Of which, the Employees Provident Fund (EPF) is one of the schemes that caters for the private sector workers.Specifically, this paper investigates the relationship between economic growth and EPF investment in Malaysia for the period of 1970 - 2014. The model, which is derived from the Cobb-Douglas production function, is tested by econometric techniques; Johansen cointegration and Granger causality within VECM. While the EPF investment is proven statistically insignificant in the short run, there is evidence of the saving/investment-led-growth hypothesis being the long run phenomenon for Malaysia. In view of the possible over-dependence on investment funds in general going forward, the policy makers are recommended to reinforce the government’s initiative in facilitating more business ventures as means to attract incoming funds, including FDI flows, towards streaming into the country.

The relationship between economic growth and employee provident fund: An empirical evidence from Malaysia

Over the years, Malaysia has progressively accelerated its economic development, thanks to the adherence to high rates of domestic savings and investment. Of which, the Employees Provident Fund (EPF) is one of the schemes that caters for the private sector workers.Specifically, this paper investigates the relationship between economic growth and EPF investment in Malaysia for the period of 1970 - 2014. The model, which is derived from the Cobb-Douglas production function, is tested by econometric techniques; Johansen cointegration and Granger causality within VECM. While the EPF investment is proven statistically insignificant in the short run, there is evidence of the saving/investment-led-growth hypothesis being the long run phenomenon for Malaysia. In view of the possible over-dependence on investment funds in general going forward, the policy makers are recommended to reinforce the government’s initiative in facilitating more business ventures as means to attract incoming funds, including FDI flows, towards streaming into the country.

China's High Savings: Drivers, Prospects, and Policies

China’s high national savings rate—one of the highest in the world—is at the heart of its external/internal imbalances. High savings finance elevated investment when held domestically, or lead to large external imbalances when they flow abroad. Today, high savings mostly emanate from the household sector, resulting from demographic changes induced by the one-child policy and the transformation of the social safety net and job security that occured during the transition from planned to market economy. Housing reform and rising income inequality also contribute to higher savings. Moving forward, demographic changes will put downward pressure on savings. Policy efforts in strengthening the social safety net and reducing income inequality are also needed to reduce savings further and boost consumption.

Of Piketty and Perpetuities

For the first time since independence, in a nation founded in large part on the rejection of a fixed nobility determined by birth and perpetuated by inheritance, America is paving the way for the creation of dynastic family wealth. Abolition or evisceration of the Rule Against Perpetuities in over half the states along with the likely repeal of the federal estate tax mean that there soon will be no obstacles to creating large pools of wealth that will insure lavish incomes to lucky heirs for generations without end. The timing of these legal changes could hardly be worse. Marshaling innovative economic data extending back centuries, Thomas Picketty convincingly argues that the relatively egalitarian incomes enjoyed in developed economies from the end of World War II until around 1980 were an aberration and that we are in the process of returning to the historical norm of much greater income and wealth inequality. The driving force is the return to a world in which the rate of return to capital (r) exceeds the growth rate of national income (g) — another historical norm temporarily abrogated during the 20th century. The wealthy hold an extremely high fraction of national wealth, and when returns to that wealth exceed the growth rate of national income, their relative economic power (and all that goes with that) increases proportionally. The main contribution of this article is, unhappily, to explore reasons that this revival of unending inherited wealth is of even greater concern than previously thought. First and foremost, the savings rate to a significant degree will be set by the dead hand control of those creating perpetual dynastic trust. In order to insure that trust assets keep up with income and beneficiary class growth, settlors will need to mandate very high savings rates for trust income. In the long term excessive savings (in excess of the “golden rule” savings rate), perhaps surprisingly, can actually retard the growth of consumption. In the shorter term, in a well-known phenomenon called the “paradox of thrift,” high savings rates can cause recessions, make them more severe, and increase their duration. Second, beneficiaries of dynastic trusts lack the power to dissipate the pools of family wealth that provide their high incomes. Prodigal children’s spending of principal is a powerful force for reducing inequality and increasing socioeconomic mobility. When not barred from doing so, descendants’ ability to sell trust assets to fund even more lavish lifestyles means that they will buy copious goods and services from those with lower incomes and less wealth. Thus perpetual dynastic family wealth thus imposes real social costs. This article recommends the conventional solution to such negative externalities: calibrated taxation of the anti-social behaviors. Instead of reinstating the Rule Against Perpetuities, this article instead suggests imposing perpetuities taxes on dynastic trusts with rates set, as closely as possible, to equal the costs imposed in terms of lower growth; more frequent and sharper business cycles; higher inequality; and lower socioeconomic mobility.