John Giles (Department of Economics, Michigan State University and Development Economics Research Group, The World Bank) Kyeongwon Yoo (Institute for Monetary and Economic Research, The Bank of Korea)
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We develop a test of precautionary behavior in the consumption decisions of rural agricultural households. Among surveyed households facing a median level of consumption risk, 10% of savings can be attributed to a precautionary motive, and this increases to 15% for households with consumption per capita below the poverty line. We next use distant lags of local rainfall shocks uncorrelated with current consumption growth to identify the size of migrant networks outside the village, and then present evidence that both poor and nonpoor households engage in less precautionary saving as the size of the village migrant network increases. Copyright by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.
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