Chapter 4: Savings functions for a multi-sector CGE model of the Chinese economy
Mei Wen and Peter Lloyd
Mei Wen and Peter Lloyd INTRODUCTION Savings provide resources for ﬁnancing ﬁxed capital formation. A high savings rate is considered a necessary condition for rapid economic growth. This paper constructs savings functions for China as part of the modelling of China’s economy in a multi-sector CGE model. Savings in any economy are sourced from four sectors: the household, government, business enterprise and foreign sectors. National savings are, therefore, the sum of savings from each sector: S = S H + SG + S E + S F (4.1) Foreign savings are equal to the deﬁcit on the current account of the balance of payments. Sometimes it is more convenient to express savings as a rate. Dividing by GDP, Y, the national savings rate can be expressed as s ≡ S/Y = w H s H + wGsG + w E s E + S F / Y. (4.2) That is, the national savings rate is the weighted average of the domestic savings rate of the sectors, with the weights being their respective shares of national income, plus the ratio of foreign savings to GDP. As foreign savings are small in China, this section examines domestic savings. Table 4.1 shows the domestic savings rate, that is, total domestic savings as a percentage of gross domestic product (GDP), for China, the OECD members, East Asia and the Paciﬁc, Japan and Korea. Figures in the table are ﬁve-year averages for the period 1960–94. These are calculated from data on yearly domestic savings rates...
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