Consumption risk-sharing in China

This paper empirically examines the degree of regional consumption risk-sharing in China. It finds that less risk-sharing is taking place across Chinese provinces than across US states and Canadian provinces, although its extent across the latter is somewhat higher than across the national boundaries of industrial countries. Specifically, about half of the fitted annual variation in provincial consumption growth is common to all Chinese provinces, compared with more than two-thirds (less than one-third) in the case of US states and Canadian provinces (G-7 countries). My estimates reveal that Chinese households would be willing to pay dearly to insure their consumption against idiosyncratic shocks.