Risk coping and starvation in rural China

Abstract

We use a 3-year panel from two poor provinces in Southern China to examine the nature of risks to which rural households are exposed and their ability to insure calorie consumption and spending of total consumption against idiosyncratic shocks to their income. We find that idiosyncratic risks are indeed the main source of income variation in the sample, consumption is better insured than total spending. Unlike total spending where full insurance is rejected in most cases, calorie intake is completely insured for both land-rich and land-poor households in both provinces. Access to even modest amounts of land significantly enhances households’ ability to guard against total spending. Land-rich households are much better insured against total spending than land-poor households. The results are robust across model specifications although Generalized Method of Moments (GMM) estimations increase the magnitude of difference in total spending between the land-rich and the land-poor. Policies targeting poverty reduction and improving land use rights and land access to the poor could potentially improve the overall risk sharing ability of the rural poor.