The Price of Growth: Consumption Insurance in China 1989-2009
53 Pages Posted: 19 Oct 2014 Last revised: 11 Aug 2016
Date Written: August 9, 2016
The welfare gains of economic growth hinge on the ability of households to insure consumption against the risks associated with growth. We exploit a novel and unique opportunity to study this question using China, an economy that has witnessed enormous and sustained growth and for which we build a long panel of household-level consumption and income. We find that consumption insurance deteriorates along the growth process with a transmission of permanent income shocks to consumption that triples from 1989 to 2009. Investment in children and housing, the predominant options to store wealth in China during these two decades, limit the use of household savings for precautionary reasons. The loss of consumption insurance has implications for the welfare assessment of economic growth across time and across space.
Keywords: Economic Growth, Consumption Insurance, Welfare, China
JEL Classification: D12, O11, O12
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