The LCH was intended, at least in the early stage, to be applied to the developed market economies only. China is a developing country having undergone regime shifts from a highly planned economy to a market-oriented eocnomy. Therefore, application of the LCH in China's context not only offers an empirically plausible explanation to the puzzle, but also provides theoretical implications as to the extension of the applicability of the LCH to a much more general environment. Empirical results using Koyck estimates and Almon estimates indicate that growth rate and demographic condition are two important factors that may accout for the spurt in Chinese savings in the last two decades. As it is generally believed, however, that the traditional keynesian theory may play an important part in explaning the savings behavior of the low-income nations, the paper also includes a comparison of the results of the LCH and the Keynesian model.
Results indicate that the former provides a better quality of fitted value than the latter.
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