Social Sciences in China (Chinese Edition)

No.10, 2017

The Economic Effect of Government Investment in Public Health: A Rural Consumption Test

(Abstract)

Mao Jie and Zhao Jinran

The impact of public health inputs on household consumption is uncertain. After 2003, however, as Chinese governments at all levels continued to increase investments in public health in rural areas, the ratio of the consumption of rural residents to their incomes has been relatively high, and significantly higher than that of urban residents. Using the China Family Panel Studies (CFPS) micro-level database and the instrumental variables estimates methodology, we conducted an empirical test of the effect of the Chinese government’s investment in public health on different types of rural consumption (medical and non-medical). Our findings show that participation in the New Rural Cooperative Medical System and the shorter time required for accessing health care providers have a significant positive correlation with non-medical rural consumption. This is particularly obvious in families with lower risk aversion (who have less motivation for precautionary saving). Participation in the New Rural Cooperative Medical System also has a significant positive correlation with rural residents’ medical consumption, but this weakens as the household’s preference for medical consumption falls (average household health rises). This shows that while the Chinese government’s investment in rural public health stimulates the growth of non-medical rural consumption, this does not occur at the expense of rural medical consumption.