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

• Authors: Raül Santaeulàlia-Llopis.
• BSE Working Paper: 995 | October 17
• Keywords: welfare , economic growth , income risk , consumption insurance , China
• JEL codes: O11, O12, E21, D12
• welfare
• economic growth
• income risk
• consumption insurance
• China

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.