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How prudent are rural households in developing transition economies:

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Author Info

  • Jin, Ling
  • Chen, Kevin Z.
  • Yu, Bingxin
  • Huang, Zuhui

Abstract

Rural households in developing economies frequently use precautionary saving to cope with income risk. Such prudent behavior can be strengthened in transition economies where more risks are typically faced by households during and after reforms. This paper uses a rich panel of rural households in Zhejiang, China, to examine the correlation between income uncertainty and the target ratio of wealth to permanent income as suggested by the buffer-stock model. The empirical results suggest that Chinese rural households hold a significant level of wealth to mitigate the adverse impacts of income risk. Simulation results show that an increase in income risk leads to a sharp increase in household wealth and precautionary saving could drop substantially if income risk is eliminated. The high level of prudence of rural households under economic transition can help us better understand the developments in China, which will have policy implications for both developing and transition countries.

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Bibliographic Info

Paper provided by International Food Policy Research Institute (IFPRI) in its series IFPRI discussion papers with number 1127.

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Date of creation: 2011
Date of revision:
Handle: RePEc:fpr:ifprid:1127

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Keywords: buffer-stock model; Income risk; precautionary saving;

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References

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Cited by:
  1. Yu, Bingxin & Nin-Pratt, Alejandro & Funes, José & Gemessa, Sinafikeh Asrat, 2011. "Cereal production and technology adoption in Ethiopia:," IFPRI discussion papers 1131, International Food Policy Research Institute (IFPRI).
  2. Morley, Samuel & Piñeiro, Valeria & Robinson, Sherman, 2011. "A dynamic computable general equilibrium model with working capital for Honduras:," IFPRI discussion papers 1130, International Food Policy Research Institute (IFPRI).
  3. Takeshima, Hiroyuki & Salau, Sheu, 2011. "How does ownership of farm implements affect investment in other farm implements when farmers' liquidity constraint is relaxed?: Insights from Nigeria," IFPRI discussion papers 1133, International Food Policy Research Institute (IFPRI).
  4. Morley, Samuel & Piñeiro, Valeria & Robinson, Sherman, 2011. "External shocks and policy alternatives in small open economies: The case of El Salvador," IFPRI discussion papers 1134, International Food Policy Research Institute (IFPRI).

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