Contrasting Welfare Impacts of Health and Agricultural Shocks in Rural

Rural households are exposed to high risks of agricultural and health shocks, which can have sizeable impacts on their welfare. Compared to the amount of attention that the testing of risk sharing has received in the empirical literature, relatively little research has been done on understanding what types of shocks are more important in terms of frequency and welfare impacts. Using detailed information on a variety of shocks and household characteristics from the China Rural Social Protection Survey, this paper examines who are more likely to be exposed to shocks, what ex-post coping strategies are employed, and how shocks affect the welfare of Chinese rural households. The data allows looking into these questions at a shock-specific level. In addition to the analysis of impacts of isolated shocks, this paper explores how these change when households are hit by multiple shocks, such as a combination of agricultural and health shocks. A first finding of this paper is that an increase in medical expenditure from health shocks has a negative impact on non-medical expenditures: durable consumption is negatively associated with health shocks in two relatively wealthier provinces; food consumption shows a similar trend among households in the richest province of the sample. Secondly, households who experienced health shocks only have higher medical expenditures than those who experienced both agricultural and health shocks. This suggests that medical insurance schemes in rural China are absent or not functioning well, and that agricultural shocks are also not well-insured. Experiencing both shocks is not a rare incident in rural China. This paper points at the need for adequate insurance schemes in these areas of China