Premarital sex ratios and household saving rates: The competitive saving motive revisited

Charles Yuji Horioka, Akiko Terada-Hagiwara

China’s one-child policy and a general preference for sons increased competition among grooms, whose families typically bear marriage expenses. This is believed to have increased household saving in the country. This column explores whether the same is observed in other countries with unbalanced sex ratios. Premarital sex ratios are found to have a significant impact on household saving rates in India and Korea, with the direction of the effect dependent on whether the bride’s (India) or groom’s (Korea) family is typically expected to bear the brunt of marriage-related expenses.

For more than five years, Professor Shang-Jin Wei of Columbia University (currently Chief Economist of the Asian Development Bank in Manila) and his co-authors have been arguing that the introduction of the one-child policy1 and other population control measures in the People’s Republic of China, combined with a strong son preference, led to an increasingly unbalanced sex ratio (i.e. the ratio of males to females) in the pre-marital cohort. Wei and co-authors argue that this, in turn, required the groom’s side to save increasingly more to ensure his success in an increasingly competitive marriage market, and that this elevated the saving rate of the household sector as a whole – what they call the “competitive saving motive” (Wei 2010, Wei and Zhang 2011a, Du and Wei 2013).

Wei and Zhang (2011a) and Du and Wei (2013) verify this effect using household-level data and provincial panel data for China, cross-country data for a sample of about 160 countries, and numerical calibration methods. They then show that the sharp increase in the pre-marital sex ratio can potentially explain about 60% of the sharp increase in China’s household saving rate during the 1990-2007 period (from 16% to 30%) and about half of both the current account surplus of China and the current account deficit of the US (see Wei and Zhang 2015 for a useful survey).

While the competitive saving motive may be applicable outside of China given the unbalanced sex ratios and conventions regarding marriage-related expenses in other countries, empirical investigations have been limited. In recent research, we seek to shed light on whether or not a similar mechanism has led to a significant relationship between the pre-marital sex ratio and household saving rate in India and the Republic of Korea (Horioka and Terada-Hagiwara 2016a, 2016b). In these two countries, as in China, sex ratios are unbalanced and marriage-related expenses are considerable. We estimate a household saving rate equation for India and Korea for the 1975-2010 period, focusing on the impact of the pre-marital sex ratio on the household saving rate (Horioka and Terada-Hagiwara 2016a, 2016b).

Theoretical considerations

If the pre-marital sex ratio is unbalanced, families with a child who belongs to the overrepresented gender will presumably increase their saving in order to ensure that their child is able to secure an ‘attractive’ spouse, especially if the custom in that country is for families with a child who belongs to the overrepresented gender to bear a disproportionate share of marriage-related expenses. At the same time, families with a child who belongs to the underrepresented gender may or may not reduce their saving due to the presence of two mutually offsetting effects. On the one hand, they may reduce their saving because of their favourable bargaining position in the marriage market; but on the other hand, they may increase their saving to ensure that their child does not suffer an erosion of his or her bargaining power compared to his or her spouse (assuming that the relative wealth levels of the two sides affects the relative bargaining power of the husband and wife compared to one another after marriage). Thus, families with a child who belongs to the overrepresented gender will unambiguously increase their saving, but it is not immediately clear whether families with a child who belongs to the underrepresented gender will increase or decrease their saving and whether the saving of the household sector as a whole will increase or decrease, on balance. However, Du and Wei (2013) show that an unbalanced pre-marital sex ratio will unambiguously raise the saving rate of the household sector as a whole for reasons that are too complex to go into here.

These theoretical considerations generate the prediction that the saving rate of the household sector as a whole will be lowest when the pre-marital sex ratio is balanced, and that it will be higher the more the pre-marital sex ratio is unbalanced in either direction. In other words, the pre-marital sex ratio will have a negative impact on the household saving rate if the pre-marital sex ratio is below the biologically normal sex ratio of 1.05 to 1.06, and a positive impact on the household saving rate if the pre-marital sex ratio is above this threshold. However, the pre-marital sex ratio is unbalanced in favour of males (i.e. it exceeds the 1.06 threshold) in both India and Korea (except in Korea during the 1975-1983 period). This implies that we would expect the pre-marital sex ratio to have a positive impact on the household saving rate in both countries because the groom’s side will have to save more and more as the pre-marital sex ratio increases and brides are in increasingly short supply.

However, the foregoing discussion ignores the issue of which side bears the brunt of marriage-related expenses. In the case of Korea, the bride’s side is expected to pay a (cash) dowry and to pay for the furnishings of the newlyweds’ home, but the groom’s side is expected to return half of the dowry and to pay for the newlyweds’ home, which has become a more and more onerous burden over time due to the rapid rise in housing prices. Thus, wedding customs in Korea are very similar to those in China, with the groom’s side being expected to bear a disproportionate share of marriage-related expenses. By contrast, in the case of India, the bride’s side must pay enormous dowries to the groom’s side. Thus, the situation in India is the opposite of that in China.

If the social custom is for the groom’s side to bear a disproportionate share of marriage-related expenses (as in China and Korea), the positive impact of the pre-marital sex ratio on the household saving rate will be actualised because the groom’s side has to save for marriage-related expenses even when the pre-marital sex ratio is balanced and will have to save even more for marriage-related expenses if the pre-marital sex ratio is unbalanced and they are disadvantaged in the marriage market.

By contrast, if the social custom is for the bride’s side to bear a disproportionate share of marriage-related expenses (as in India), the positive impact of the pre-marital sex ratio on the household saving rate may not be actualised because it is the bride’s side that bears the burden of marriage-related expenses, and even if the pre-marital sex ratio increases (the ratio of grooms to brides increases), the groom’s side will not necessarily have to save any more than before for marriage-related expenses despite its disadvantaged position in the marriage market. Indeed, as the pre-marital sex ratio increases, the shortage of brides will become increasingly acute, which in turn might bid down dowries, reduce the marriage-related saving that the bride’s side has to do, and thereby reduce overall household saving. Thus, the impact of the pre-marital sex ratio on the household saving rate could well have a negative impact on the household saving rate, the opposite result from countries such as China and Korea where the groom’s side bears a disproportionate share of marriage-related expenses.

To summarise, even though potential grooms outnumber potential brides in both India and Korea, we would expect the impact of the pre-marital sex ratio to be different in the two countries due the differences in social customs regarding which side bears the brunt of marriage-related expenses. We would expect the pre-marital sex ratio to have a positive impact on the household saving rate in Korea, where the groom’s side bears a disproportionate share of marriage-related expenses, and it could well have a negative impact on the household saving rate in India, where the bride’s side bears a disproportionate share of marriage-related expenses.

Empirical analysis

We perform a cointegration analysis of the determinants of household saving rate in India and Korea for the 1975-2010 period using an estimation model derived from the life cycle-permanent income hypothesis (Horioka and Terada-Hagiwara 2016a, 2016b). We find that there is a cointegrating relationship between the household saving rate and its determinants, and their estimated cointegrating vectors show that the youth dependency ratio (the ratio of youths to the working-age population), the aged dependency ratio (the ratio of the aged to the working-age population), and per capita household disposable income have the expected impacts on the household saving rate (negative, negative, and positive, respectively) in almost all cases. The only exception is that the aged dependency ratio has a positive impact on the household saving rate in Korea, contrary to expectation, perhaps because the aged in Korea continue to save even after retirement because they are saving for precautionary purposes and/or in order to leave a bequest to their children. Turning to the variable of most interest for our purposes, we find that the pre-marital sex ratio has a significant impact on the household saving rate in both India and Korea (Horioka and Terada-Hagiwara 2016a, 2016b). That impact is, as expected, negative in India (where the bride’s side bears the brunt of marriage expenses) and positive in Korea, as in China (where the groom’s side bears the brunt of marriage expenses). Hence, the excess of grooms relative to brides was found to lead to a lower (higher) household saving rate in India (Korea).

Policy implications

Our analysis has important policy implications – because the combination of unbalanced sex ratios and hefty marriage expenses can distort household saving behaviour and lower household welfare, eliminating son preference and population control measures and moderating marriage expenses can help alleviate distortions in saving behaviour, reduce gender inequalities, and raise household welfare, thereby killing three birds with one stone.

References

Du, Q and S-J Wei (2013) “A theory of the competitive saving motive”, Journal of International Economics, 91(2): 275-289.

Duflo, E (2008) “Too Many Boys…,” VoxEU.org, 18 August.

Horioka, C Y and A Terada-Hagiwara (2016a) “The impact of sex ratios before marriage on household saving in two Asian countries: The competitive saving motive revisited”, ADB Working Paper No 494, Asian Development Bank, Manila, Philippines (August).

Horioka, C Y and A Terada-Hagiwara (2016b), “The impact of sex ratios before marriage on household saving in two Asian countries: The competitive saving motive revisited”, Review of Economics of the Household, forthcoming.

Wei, S-J (2010) “The mystery of Chinese savings”, Vox EU.org, 6 February.

Wei, S-J and X Zhang (2011a) “The competitive saving motive: Evidence from rising sex ratios and savings rates in China”, Journal of Political Economy, 119(3): 511-564.

Wei, S-J and X Zhang (2015) “The competitive saving motive: Concept, evidence, and implications”, ADB Economics Working Paper No 465, Asian Development Bank, Manila, Philippines (November).

Endnotes

[1] See Duflo (2008) for more on China’s one-child policy.