DP16654 Growing Apart: Declining Within- and Across-Locality Insurance in Rural China

Author(s): Orazio Attanasio, Costas Meghir, Corina Mommaerts, Yu Zheng
Publication Date: October 2021
Keyword(s): Consumption Insurance, Risk-Sharing, Rural China
JEL(s): D12, E21, H71, O11, O12
Programme Areas: Public Economics, Development Economics, Macroeconomics and Growth
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=16654

We consider risk sharing in rural China during 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 shocks.