Behavioral Responses to Risk in Rural China

Download or read book Behavioral Responses to Risk in Rural China written by Jyotsna Jalan and published by World Bank Publications. This book was released on 1998 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: September 1998 Does risk perpetuate poverty in a credit-constrained economy? Income risk appears not to discourage schooling but does inhibit the out-migration of labor. Only a small share of wealth is held in unproductive liquid forms to protect against income risk. Does risk perpetuate poverty in a credit-constrained economy? Jalan and Ravallion study portfolio and other behavioral responses to measured risk using household panel data for rural China. One-quarter of wealth is held in unproductive liquid forms. But only a small share of this appears to be a precaution against income risk. The authors estimate that eliminating income risk would reduce the share of wealth held in liquid form by less than 1 percentage point. Moreover, that effect is confined largely to middle-income groups; high-income households do not, it seems, need to hold unproductive precautionary wealth, and the poor probably cannot afford to do so. The authors find no evidence that income risk discourages schooling, but risk does inhibit the out-migration of labor. Generally, the results provide only limited support for the idea that uninsured risks promote unproductive portfolio behavior in this setting. There is such an effect, but it is small in magnitude and cannot be deemed an important cause of poverty. This paper-a product of Poverty and Human Resources, Development Research Group-is part of a larger effort in the group to better understand the causes of poverty. The study was funded by the Bank's Research Support Budget under the research project Dynamics of Poverty in Rural China (RPO 678-69). The authors may be contacted at [email protected] or [email protected].