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The effects of medical insurance on durables consumption in rural China

  • Meiling Ying
  • Zaichao Du

Purpose – The New Rural Cooperative Medical Scheme (NRCMS), implemented in China since 2003, has greatly increased the access of the poor to health services and alleviated the hardship caused by catastrophic medical payments. Both the precautionary saving theory and the Buffer-Stock saving theory would predict a positive effect of this event on consumption. The purpose of this paper is to empirically study the effects of medical insurance on durables consumption in rural China. Design/methodology/approach – Using China Health and Nutrition Survey (CHNS) data, the authors study the effects of medical insurance on durable goods consumption in rural China through a panel binary choice model. Findings – It is found that households with medical insurance have a significantly higher level of durables consumption, and their probabilities of purchasing durables increase by 2.0 per cent-4.4 per cent, which support the precautionary saving theory and the Buffer-Stock saving theory. Originality/value – Unlike previous studies, the authors focus on the effects of medical insurance on the consumption of durables, which have a big weight in household wealth and are more sensitive to income uncertainty.

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Article provided by Emerald Group Publishing in its journal China Agricultural Economic Review.

Volume (Year): 4 (2012)
Issue (Month): 2 (May)
Pages: 176-187

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Handle: RePEc:eme:caerpp:v:4:y:2012:i:2:p:176-187
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  1. Kantor, Shawn Everett & Fishback, Price V, 1996. "Precautionary Saving, Insurance, and the Origins of Workers' Compensation," Journal of Political Economy, University of Chicago Press, vol. 104(2), pages 419-42, April.
  2. Deaton, A., 1989. "Saving And Liquidity Constraints," Papers 153, Princeton, Woodrow Wilson School - Public and International Affairs.
  3. Xiaoyun Sun & Sukhan Jackson & Gordon Carmichael & Adrian C. Sleigh, 2009. "Catastrophic medical payment and financial protection in rural China: evidence from the New Cooperative Medical Scheme in Shandong Province," Health Economics, John Wiley & Sons, Ltd., vol. 18(1), pages 103-119.
  4. Eric M. Engen & Jonathan Gruber, 1995. "Unemployment Insurance and Precautionary Saving," NBER Working Papers 5252, National Bureau of Economic Research, Inc.
  5. Wagstaff, Adam & Pradhan, Menno, 2005. "Health insurance impacts on health and nonmedical consumption in a developing country," Policy Research Working Paper Series 3563, The World Bank.
  6. J. Gruber & A. Yelowitz, . "Public Health Insurance and Private Savings," Institute for Research on Poverty Discussion Papers 1135-97, University of Wisconsin Institute for Research on Poverty.
  7. Zeldes, Stephen P, 1989. "Optimal Consumption with Stochastic Income: Deviations from Certainty Equivalence," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 275-98, May.
  8. Chou, Shin-Yi & Liu, Jin-Tan & Hammitt, James K., 2003. "National Health Insurance and precautionary saving: evidence from Taiwan," Journal of Public Economics, Elsevier, vol. 87(9-10), pages 1873-1894, September.
  9. Christopher D. Carroll, 1992. "The Buffer-Stock Theory of Saving: Some Macroeconomic Evidence," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(2), pages 61-156.
  10. Hausman, Jerry A, 1978. "Specification Tests in Econometrics," Econometrica, Econometric Society, vol. 46(6), pages 1251-71, November.
  11. Wagstaff, Adam, 2007. "The economic consequences of health shocks: Evidence from Vietnam," Journal of Health Economics, Elsevier, vol. 26(1), pages 82-100, January.
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