How Prudent are Rural Households in Developing Transition Economies: Evidence from Zhejiang, China

Rural households in developing economies frequently use precautionary saving to cope with income risk. Such prudent behavior can be strengthened in transition economies where more risks are typically faced by households during and after reforms. This paper uses a rich panel of rural households in Zhejiang, China, to examine the correlation between income uncertainty and the target ratio of wealth to permanent income as suggested by the buffer-stock model. The high level of prudence of rural households under economic transition can help us better understand the developments in China, which will have policy implications for both developing and transition countries. [IFPRI Discussion Paper 01127]. URL:[http://www.ifpri.org/sites/default/files/publications/ifpridp01127.pdf].