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Theme 1: To be and to be better: financing medical care and education in rural China

Because of the financial constraint, rural households in developing countries had to smooth the consumption mainly by their meager assets or informal financial sources. The literatures assumed that the holes left by market failure or uncertainty generally lead the worse-off households to severe financial risk at all. When financial shocks occurred, the livelihood of rural household will be worse off. The questions analyzed in this paper are about the characteristics of financial sources in education and medical care expenditures concerned with living and life of the farmers in rural China. Is education expenditure always predictable and medical care unpredictable? Does rural household finance the two kinds of expenditures in the same way? How rural households make financial decision on the two kinds of payment? The approaches of non-parametric test and Probit model are used to test the difference and to analyze causality in the financial decision of households. The result indicates that whatever education or medical care expenditure, excessive expense will lead household into financial strait, and their livelihood will be worse off under financial constraint. Financing education mainly depends on savings, which shows the effect of predictability, whereas medical care on loans, that of unpredictability. In both expenditures, formal loans are almost absent even in the richest group. The conclusions implied that the extension of rural financial service to education and health insurance could increase freely disposable income with precautionary savings reduced by household, in addition to better-educated and healthier people in rural China.

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