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More Chinese girls needed to balance global economy: study

More Chinese girls needed to balance global economy: study
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First Published: Fri, May 28 2010. 09 14 PM IST

Updated: Fri, May 28 2010. 09 14 PM IST
Western economists are fond of blaming high Chinese savings rates for that country’s large current account surplus and have argued that the US has had little choice but to consume more and run a large current account deficit in order to offset the impact of the savings glut.
The question is: Why do Asian economies have such high rates of savings? The usual explanation is that unlike the Western economies, we do not have social security safety nets, and therefore, need to save to provide for old age, illnesses, unemployment and other uncertainties.
A related reason is that countries such as China keep deposit rates artificially low, which enables banks to lend cheaply, but forces households to save more. The solution is accordingly for China to adopt policies that encourage consumption, which is precisely what the International Monetary Fund has been preaching.
Qingyuan Du and Shang-Jin Wei provide a rather different explanation for the high savings rates. Their paper says that it’s the unbalanced sex ratio, or the higher proportion of men relative to women, that’s responsible for higher savings rates.
In their words: “The basic thesis is that as competition intensifies in the marriage market, men or parents with sons raise their savings rates with the hope of improving their relative standing in the marriage market. Because the biological desire to have a partner of the opposite sex is strong, this effect is quantitatively important enough to reveal itself in the aggregate savings rate and the current account balance.”
Illustration: Shyamal Banerjee/Mint
What’s more, they find a positive correlation between a country’s sex ratio and its current account surplus.
But even if we accept the researchers’ premise that men need to save more so that they can present themselves as more attractive partners in the marriage market, won’t the favourable sex ratio from the women’s point of view allow them to save less, thus cancelling out any change in the aggregate savings rate?
The authors have an ingenious explanation. They say that a man raises his savings rate for two reasons: one, to improve his relative standing in the marriage market, and two, he realizes that his future wife will save less than him, and therefore, he increases his savings rate to compensate for that effect too.
And just in case that doesn’t sound very convincing, they buttress their position by arguing that women may not reduce their savings rates because they would like to have more “inter-household bargaining power” after they get married. In short, more savings equals a greater say in how to run the household.
The final irony in all this is that “the increase in aggregate savings is socially inefficient, since the number of unmarried men in the aggregate is not altered by the savings race”.
In other words, you may skimp and save all you like, but all the other bachelors are doing the same and you might end up not only unloved and unmarried, but also contribute your share to global imbalances and a financial crisis.
Won’t a decrease in the sex ratio, that is, more women than men, have a similar impact because women start saving more? The authors say that it will, but caution that the impact may not be the same because “the amount of emotional utility that women derive from their spouses may not be the same as the other way around”.
In this vein, the authors’description of the marriage market, where “everyone ranks the member of the opposite sex by a combination of two criteria: one, the size of wealth, and two, the size of love he or she can obtain from his or her spouse” is also a must-read.
And finally, the paper says that about half of China’s current account surplus and the US current account deficit can be explained by the unbalanced Chinese sex ratio.
All the world needs to do to get rid of global imbalances and avoid future crises is apparently to persuade the Chinese to have more girl babies.
Write to simplyeconomics@livemint.com
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First Published: Fri, May 28 2010. 09 14 PM IST