The Price of Growth: Consumption Insurance in China 1989–2009

Recognition Program

Authors: Raül Santaeulàlia-Llopis and Yu Zheng

American Economic Journal: Macroeconomics, Vol. 10, No 4, 1-35, October, 2018

We exploit a novel and unique opportunity to document the transmission of income risk to consumption in a growing economy. Our laboratory is China, an economy that has witnessed enormous and sustained growth. We build a long panel of household-level consumption and income data. We find that consumption insurance deteriorates along the growth process with a transmission of permanent income shocks to consumption that at least triples from 1989 to 2009. Although preliminary, our welfare analysis suggests that the loss of consumption insurance can have first-order implications for the welfare assessment of economic growth.

This paper originally appeared as Barcelona School of Economics Working Paper 995
This paper is acknowledged by the Barcelona GSE Research Recognition Program