nep-cna New Economics Papers
on China
Issue of 2011‒05‒30
one paper chosen by
Zheng Fang
Ohio State University

  1. Channels of Interprovincial Risk Sharing in China By Julan Du; Qing He; Oliver M. Rui

  1. By: Julan Du (The Chinese University of Hong Kong); Qing He (Renmin University of China and Hong Kong Institute for Monetary Research); Oliver M. Rui (The Chinese University of Hong Kong and Hong Kong Institute for Monetary Research)
    Abstract: 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: O16 O53 R11
    Date: 2011–04

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