Channels of Interprovincial Risk Sharing in China

46 Pages Posted: 27 Apr 2011 Last revised: 20 Jul 2022

Date Written: April 27, 2011

Abstract

This working paper was written by Julan Du (The Chinese University of Hong Kong), Qing He (Renmin University of China) and Oliver M. Rui (The Chinese University of Hong Kong).

This paper decomposes consumption risk sharing among provinces in China over the 1980-2007 period. We find that 9.4 percent of the shocks to gross provincial product are smoothed by the interprovincial fiscal transfer system. This system also cushions a relatively large fraction of the province-specific shocks in the coastal provinces of China. Using a variety of indicators, we explore non-fiscal channels of consumption risk sharing. We find that the migration of rural labor to urban areas and the remittance of migrant wages play important roles in promoting interprovincial consumption risk sharing in the inland provinces of China. In contrast, the extent of risk sharing through financial intermediaries and the capital markets is very limited. These factors have resulted in a low degree of risk sharing among Chinese provinces, especially over the last decade.

Keywords: Consumption Risk Sharing, Chinese Economy, Fiscal System, Credit Markets, Remittance

JEL Classification: O16, O53, R11

Suggested Citation

Institute for Monetary and Financial Research, Hong Kong, Channels of Interprovincial Risk Sharing in China (April 27, 2011). Hong Kong Institute for Monetary and Financial Research (HKIMR) Research Paper WP No. 12/2011, Journal of Comparative Economics, Vol. 39, No. 3, 2011, Available at SSRN: https://ssrn.com/abstract=1824142 or http://dx.doi.org/10.2139/ssrn.1824142

Hong Kong Institute for Monetary and Financial Research (Contact Author)

(HKIMR) ( email )

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