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Three Essays on Home Production and the Chinese Economy

  • Author(s): Wang, Yabin
  • Advisor(s): Hutchison, Michael
  • et al.

In this work I study several aspects of the Chinese economy using the notion of home production, that is the idea that households allocate time and financial resources to productive non-market activities.

In the first chapter, I study a new channel through which uncertainty hinders private consumption, namely a cautionary effect on household demand for capital goods. I develop a dynamic stochastic home production model with adjustment frictions on household capital, and characterize the optimal investment policy as a function of uncertainty, preferences and home production technology. A key prediction from the model is that higher uncertainty makes households more cautious in undertaking investments in home capital. I test the model prediction using a rich panel dataset on Chinese households, and document two types of cautionary effects: higher income uncertainty reduces the responsiveness of investments to increases in household disposable income and to a policy stimulus. I also find that household investment decisions are nearly insensitive to the variance of permanent income shocks and mainly respond to the variance of medium-run income shocks. These findings highlight the limits to policy interventions that subsidize household expenditures on appliances in conditions of uncertainty.

In ``Durable Ownership and Time Allocation: Evidence from China's Home Appliances to the Countryside Rebate ", a joint paper with Ishani Tewari, I estimate the effect of labor saving household technologies on female labor force participation. To organize the empirical analysis, we formulate a model of home production which delivers testable predictions regarding the effect of durable price on adoption, and the impact of adoption on allocation of time between home and the market. Importantly, the model illustrates how changes in time use will be asymmetric for males and females in the household. In drawing the causal link between durable ownership and household time allocation, we exploit price shocks generated by the Home Appliances to the Countryside promotion, a durable goods rebate offered by the Chinese government to certain rural households for specific durables like fridges and washing machines. Results show that eligible households had higher ownership propensity in these categories and this leads to a large and significant reduction in housework, as well as a sizable increase in market work time, and a boost in female LFP. Also consistent with the model, we find the reallocation of time is driven by females, rather than males, in the household.

In ``Home Production and China's Hidden Consumption", I show that a significant part of China's private consumption is satisfied through unpaid home production. Using data from the American Time Use Survey and the China Health and Nutrition Survey between 2003 and 2010, I show that time spent at home work has been significantly higher in China than in the U.S., especially for women and retired individuals, although there are signs of a slow convergence towards the U.S. levels. Then I provide a structural analysis of Chinese household consumption and time use. I formulate a partial equilibrium home production model that improves on existing literature by modeling preferences over market vs. non-market work and by including non-employed household members. I show that this model is able to explain the key stylized facts about home production in China. Lastly, I find that the share of non-market consumption to measured GDP is around 40%.

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