Accounting for Secular Movement of China s Saving and Investment

Abstract

This paper provides an accounting exercise for the secular movement of China s saving and investment and explores how its saving and investment can be evolved in the decades ahead. To this end, we calibrate the Neoclassical Growth Model to China s real economy. Our results suggest that on average the model can replicate Chinese saving rate from 1978 to 2006 fairly well. Based on our simulation results, the thesis predicts that China may be able to moderately reduce both saving and investment by two percentage points per year and continue to have the growth in total factor productivity (TFP) and consumptions in the short and medium run.