Working Paper: CEPR ID: DP16654
Authors: Orazio Attanasio; Costas Meghir; Corina Mommaerts; Yu Zheng
Abstract: We consider risk sharing in rural China during its rapid economic transformation from the late 1980s through the late 2000s. We document an erosion of consumption insurance against both household-level idiosyncratic and village-level aggregate income shocks, and show that this decline is related to observable economic changes: the shift from agriculture to wage employment, the decline of publicly owned Township-and-Village Enterprises, and increased migrant work. Further evidence suggests that as these changes took place at the village level, higher levels of government failed to offset these effects through the tax-and transfer system, leaving households more exposed to both idiosyncratic and village-aggregate risk.
Keywords: Consumption Insurance; Risk Sharing; Rural China
JEL Codes: O11; O12; E21; D12; H71
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| economic transformations (P39) | erosion of consumption insurance (G52) |
| shift from agriculture to wage employment (J43) | erosion of consumption insurance (G52) |
| decline of publicly owned township and village enterprises (P31) | erosion of consumption insurance (G52) |
| increased migrant work (J61) | erosion of consumption insurance (G52) |
| weaker agricultural sector (Q19) | erosion of consumption insurance (G52) |
| higher migration rates (J61) | erosion of consumption insurance (G52) |
| fewer township and village enterprises (P31) | erosion of consumption insurance (G52) |
| economic changes (N14) | increased exposure to idiosyncratic and village-level aggregate shocks (D89) |
| 1998-2009 (F29) | decline in consumption insurance (G52) |
| households better insured (1989-1997) (G52) | households less insured (1998-2009) (G52) |
| 60% of permanent income shocks (D15) | insured within villages (G52) |
| 90% of transitory income shocks (H31) | insured within villages (G52) |