The Intellectual Merit of the Proposed Research Agenda The research aims to document a new motive for savings and a new stimulus for entrepreneurship and economic growth. While the existing literature on savings discusses the roles of the precautionary savings, the life-cycle factor, financial development, culture, and habit formation, the PI's argue that these are incomplete. Using both data from within China and across countries, they study whether a new status-seeking motive for savings can be quantitatively powerful enough to drastically augment the precautionary savings motive and other determinants of the savings rate. A key driver for the progressively stronger status-seeking motive is a rising sex ratio imbalance. The preliminary evidence suggests that the status-seeking motive may explain about half the increase in the Chinese savings rate from 1990 to 2007. While theoretical models on status seeking do exist, none of them features a sex ratio imbalance. The sex ratio imbalance could present a non-trivial challenge as opposing partial equilibrium effects could offset each other (e.g, dissavings by women could offset the increased savings by men). The PI's construct a model that explicitly features sex ratio imbalances, and they show conditions under which the economy-wide savings rate increases with a rise in the sex ratio. The same force that leads to competitive savings can also induce people to become more entrepreneurial and to supply more work effort. The PI's provide the first evidence in the literature on these channels. They also provide general equilibrium estimates that suggest the effect of a rise in sex ratio on economic growth is positive and economically significant. They propose a field research in a remote mountainous area of China to study savings and entrepreneurship motivated by status-seeking competition, including in relation to a wedding event in a family. The Broader Impact Resulting from the Proposed Research The research has both empirical relevance and important policy implications. The phenomenon of global current account imbalances, a large U.S. current account deficit, matched by large current account surpluses of China and some other economies, is often understood as the result of some countries' exchange rate manipulations or financial sector deficiency or both. Policy efforts by the U.S. government and international financial institutions to address the problem are often guided by such thinking. Yet, according to the research, such thinking is at best incomplete and at worst misguided. If the status-seeking motive plays an important role in generating the rapid rise in the savings rates in China and other Asian economies, then policy dialogues that ignore this savings motive will not likely yield desired results. Similarly, if the sex ratio is a key driver for entrepreneurship and growth, the high growth momentum in China, India, and Vietnam (countries known to have a strong sex ratio imbalance) will last longer than what one would expect from the traditional Solow growth model. The pace of the realignment in the international economic order can be expected to quicken in the decades to come.
