Climate Volatility and Household Saving in China

Abstract

Many studies have investigated the correlation between climate change and economic growth. However, this study focuses on household saving, whereby growth may be correlated with climate volatility. This study conducts a dynamic panel analysis using data on Chinese provinces for the period of 2001–2009. Various indicators of climate volatility are employed to ensure robustness, and the Generalized Method of Moments (GMM) approach is chosen to reduce endogeneity. The estimation results show that in rural areas, temperature volatility is positively correlated with the household saving rate, but that the correlation is weaker in urban areas. This study suggests that first, to increase household welfare, risk-pooling insurance should be applied, and second, that rural areas should be the priority for development over urban areas.