WILL HIGH HOUSEHOLD SAVING IN CHINA PERSIST? AN APPLICATION OF THE CONSPICUOUS CONSUMPTION THEORY

Expanding from Veblen’s conspicuous consumption theory, this paper provides new explanations on China’s household saving behavior. Using provincial level data, it finds evidence that urbanization, increased mobility of the population, and a greater degree of openness all depress household saving, likely through higher conspicuous consumption. This result is robust with different estimators and specifications. Among the conventional explanatory variables, the paper finds support for the permanent income theory, but little evidence for the life cycle theory.. Classification-JEL: Keywords: conspicuous consumption; household saving Chinese economy; cultural changes; international openness; urbanization; population mobility.