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Does adversity affect long-term financial behaviour? Evidence from China’s rustication programme

Yi Fan

Journal of Urban Economics, 2020, vol. 115, issue C

Abstract: This paper examines the long-term effects of adversity on financial behaviour. It draws on the largest forced migration experiment in history, China’s rustication programme. Evidence from the Chinese Twins Survey and Chinese Household Income Project shows that rusticated individuals behave conservatively with respect to finances over the long term, compared with their age-eligible but nonrusticated peers. They reduce housing consumption and its share of total assets, increase savings, accumulate more safe assets, and invest less in risky assets. Such patterns are consistent with evidence from manually collected county gazetteer data. Possible mechanisms include reduced productivity, habit formation, and psychological changes.

Keywords: Adversity; Long-term effects; Financial behaviour (search for similar items in EconPapers)
JEL-codes: D1 J6 R1 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.jue.2019.103218

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