Growing Apart: Declining Within- and Across-Locality Insurance in Rural China
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.
We thank seminar and conference participants in UCL, Bristol, Southwestern University of Finance and Economics, Peking University, Shanghai University of Finance and Economics, Jinan University, North American Summer Meetings of the Econometric Society 2021, Asian Meetings of the Econometric Society 2021, China Meetings of the Econometric Society 2021, Australasian Meetings of the Econometric Society 2021 and the European Economic Association Annual Meetings 2021. Costas Meghir thanks the Cowles foundation and the ISPS for financial support. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.