TY - JOUR
T1 - Digital Financial Inclusion and Consumption Smoothing in China
AU - Lai, Jennifer T.
AU - Yan, Isabel K. M.
AU - Yi, Xingjian
AU - Zhang, Hao
PY - 2020/1
Y1 - 2020/1
N2 - In this paper, we investigate the effect of digital financial inclusion (DFI) on household consumption smoothing in China. We use four waves of the biennial China Family Panel Studies from 2010 to 2016, during which time DFI has significantly developed alongside financial technology across China. We split household income shocks into permanent and transitory components, and evaluate if DFI may help households to buffer against these shocks. We find that households are not able to insure against permanent shocks to income, but they can smooth approximately 70 percent of transitory shocks to income. We also find that DFI has diminished households’ ability to insure against transitory income shocks. This is partly because online purchase may lead to the oversensitivity of consumption to income. In addition, we find that contrary to DFI, traditional financial sector development contributes to better household consumption smoothing against transitory income shocks.
AB - In this paper, we investigate the effect of digital financial inclusion (DFI) on household consumption smoothing in China. We use four waves of the biennial China Family Panel Studies from 2010 to 2016, during which time DFI has significantly developed alongside financial technology across China. We split household income shocks into permanent and transitory components, and evaluate if DFI may help households to buffer against these shocks. We find that households are not able to insure against permanent shocks to income, but they can smooth approximately 70 percent of transitory shocks to income. We also find that DFI has diminished households’ ability to insure against transitory income shocks. This is partly because online purchase may lead to the oversensitivity of consumption to income. In addition, we find that contrary to DFI, traditional financial sector development contributes to better household consumption smoothing against transitory income shocks.
KW - consumption smoothing
KW - digital financial inclusion
KW - insurance
KW - permanent income shock
KW - transitory income shock
UR - http://www.scopus.com/inward/record.url?scp=85079728049&partnerID=8YFLogxK
UR - https://www.scopus.com/record/pubmetrics.uri?eid=2-s2.0-85079728049&origin=recordpage
U2 - 10.1111/cwe.12312
DO - 10.1111/cwe.12312
M3 - RGC 21 - Publication in refereed journal
SN - 1671-2234
VL - 28
SP - 64
EP - 93
JO - China and World Economy
JF - China and World Economy
IS - 1
ER -
