The effects of medical insurance on durables consumption in rural China

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.