The Competitive Saving Motive in China: Implications for Savings, the Current Account, and Housing Prices.

• Author: Wei, Shang-Jin

The competitive saving motive refers to saving for the purpose of raising one's relative status in the competition for dating and marriage partners. Unlike the standard life cycle and precautionary motives, it is all about competition with others. The higher an individual's savings relative to others in the same age and gender cohort, the better the individual's competitive position.

Competitive saving can be motivated from an evolutionary point of view, since it refers to the accumulation of wealth to gain an edge in the race to satisfy biological and physiological desires. If not having a sex partner implies a big loss of well-being, people are willing to do a lot to improve their competitiveness on that front. When the competition intensifies, those in the race may adjust their saving rates significantly.

Competitive saving as an explanation for patterns in the Chinese economy was initially proposed in a series of studies by Xiaobo Zhang, Qmgyuan Du, and me. We also explore its implications for asset markets, especially housing prices, and for economic growth. The competitive saving motive could be present in any economy, including one with a balanced sex ratio, but its effects are easier to detect in an economy with an unbalanced or changing sex ratio for the marriage age cohort. A shock to the competitiveness of the dating and marriage market, such as a change in the ratio of marriage-age men to women due to sex-selective abortions or infanticide, wars, famines, or immigration can have a profound effect on savings, interest rates and other asset prices, work effort, and economic growth.

Empirical Motivation and Theory

Zhang and I were the first to propose the concept of a competitive saving motive. We estimated that a heightened competitive saving motive, triggered by a sharp rise in China's male-to-female ratio in the premarital age cohort since 2000, contributed about 50 percent of the rise in the Chinese savings rate since 2000. (1) In fact, many countries, including Singapore, India, Vietnam, Korea, and Taiwan, also have exhibited unbalanced sex ratios in the premarital age cohorts. The competitive saving motive may have played a quantitatively important role in the evolution of these countries' saving rates as well.

Du and I formalized a theory of the competitive saving motive. Our model clarified the conditions under which the competitive saving motive at an individual level can translate into major changes in economy-wide aggregate savings. (2) Our central theoretical findings include:

* The saving rate of the gender that is in excess supply will tend to rise. When males are in relative surplus, men, and, importandy, parents of unmarried sons will tend to increase their saving rate whenever the probability of marriage declines. This is because higher savings is considered an effective signal and competitive instrument in the dating and marriage market.

* The impact of greater competition on the saving rate of the gender that is in shorter supply is indeterminate. On the one hand, women and their parents may not save as much as they might otherwise, in anticipation of the higher savings of their future husbands. On the other hand, the desire of women to outcompete each other to be matched...