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Does purchasing commercial insurance promote household consumption? Evidence from China

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  • Wang, Yizi
  • He, Xiaoying

Abstract

Consumption is an important factor driving China's economic growth. Although China's per capita GDP is approaching the threshold of high-income countries, the household consumption rate remains significantly low. One of the main reasons for weak household consumption is the imperfect social security system, and the complementary role of commercial insurance should be fully utilized. Based on existing research, which primarily assesses the positive effects of commercial insurance, this paper focuses on whether commercial insurance can promote household consumption. Using the 2017 and 2019 waves of the China Family Finance Survey (CHFS) data, this paper conducts empirical research with a high-dimensional fixed effects model, performing endogeneity and robustness tests. The results show that commercial insurance has a significant positive effect on household consumption. Mechanism analysis reveals that purchasing commercial insurance significantly reduces households' precautionary savings and liquidity constraints, thereby releasing their purchasing power and ultimately increasing household consumption. The heterogeneity analysis indicates that the promotion effect varies across different regions, household registrations (urban or rural), health statuses, and the marital status of sons in the household. The research findings provide evidential support for the government to further encourage and promote the development of commercial insurance.

Suggested Citation

  • Wang, Yizi & He, Xiaoying, 2024. "Does purchasing commercial insurance promote household consumption? Evidence from China," International Review of Economics & Finance, Elsevier, vol. 96(PB).
    • Handle: RePEc:eee:reveco:v:96:y:2024:i:pb:s1059056024006336
    DOI: 10.1016/j.iref.2024.103641
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