Leave a reply
City Size, Commuting Cost and Household Savings Rate: Evidence from China
Zhang Yuan (章元) and Wang Jufei (王驹飞)*
School of Economics, Fudan University, Shanghai, China
Abstract:Economics literature has long overlooked an important economic phenomenon: Residents in large cities tend to save a smaller percentage of their disposable income than their peers in small and medium-sized cities. As an explanation for this phenomenon, this paper puts forth the hypothesis that: Residents in large cities purchase more services to increase their leisure time, which is reduced by longer commuting time than in small and medium-sized cities, thus lowering their household savings rate. We conducted an empirical study using panel data of China’s prefecture-level cities and urban household survey data, and employed an instrumental variable to address the endogeneity problem. The result confirmed the accuracy of the above hypothesis. In identifying the economic phenomenon and putting forth the hypothesis, this paper (i) creates a theoretical link between city size and household savings rate, which helps unravel the determinants of the urban household savings rate; (2) provides important implications for China’s policy-making on domestic consumption, urban populations, and industrial development. Priority should be given to developing large and medium-sized cities given the positive effects on domestic consumption and service sector development, and migrant labor shall not be barred from entering large and medium-sized cities to provide services to local residents.
Keywords:city size, household savings rate, commuting cost, service consumption
JEL Classification Codes: D12, D14, R29
DOI: 10.19602/j.chinaeconomist.2020.09.08
