Channels of Interprovincial Risk Sharing in China

HKIMR Working Paper No.12/2011

46 Pages Posted: 27 Apr 2011

See all articles by Julan Du

Julan Du

The Chinese University of Hong Kong (CUHK) - Department of Economics

Qing He

School of Finance, Renmin University of China

Oliver M. Rui

China Europe International Business School (CEIBS)

Date Written: April 27, 2011

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 Classification: O16, O53, R11

Suggested Citation

Du, Julan and He, Qing and Rui, Oliver M., Channels of Interprovincial Risk Sharing in China (April 27, 2011). HKIMR Working Paper No.12/2011, Available at SSRN: https://ssrn.com/abstract=1824142 or http://dx.doi.org/10.2139/ssrn.1824142

Julan Du

The Chinese University of Hong Kong (CUHK) - Department of Economics ( email )

Shatin, N.T.
Hong Kong

Qing He (Contact Author)

School of Finance, Renmin University of China ( email )

Minde Building
Renmin University of China
Beijing, Beijing 100872
China

Oliver M. Rui

China Europe International Business School (CEIBS) ( email )

699 Hong Feng Road
Pudong
Shanghai 201206
China
86-21-28905618 (Phone)
86-21-28905620 (Fax)

HOME PAGE: http://https://www.ceibs.edu/rui-oliver

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