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 GSE Working Paper 995
This paper is acknowledged by the Barcelona GSE Research Recognition Program