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Archives of Business Research – Vol. 8, No. 8
Publication Date: August 25, 2020
DOI: 10.14738/abr.88.8760.
Zhou, J. (2020). An Empirical Study On Residents' Consumption Changes Based On The Development Of Commercial Annuity. Archives
of Business Research, 8(8). 110-122.
An Empirical Study On Residents' Consumption Changes Based On
The Development Of Commercial Annuity
Jiaxuan Zhou
School of Insurance
Central University of Finance and Economics, Beijing, China
ABSTRACT
The relationship between the level of pension insurance development
and the consumption of Chinese residents is a topic of constant debate.
However, few scholars have analyzed residents' consumption behavior
based on the level of commercial annuity development. Using China's
2010-2018 inter-provincial panel data, this article builds a dynamic
panel regression model to explore the impact of the development of
commercial annuities on household consumption and its structure. In
addition, the paper also compares the impact of the protection levels of
basic pension insurance and commercial annuity on household
consumption. The results show that the per capita disposable income
of residents is still the main factor that promotes residents’
consumption. The improvement of commercial annuity and basic
endowment insurance will help to promote residents' consumption,
and the effect of commercial annuity's promotion on residents'
consumption is more significant. In promoting the optimization and
upgrading of consumption structure, commercial annuity insurance
plays a more significant role than residents' income level and basic
pension insurance. Based on the regression results, this article
suggests that efforts should be made to increase the income level of
residents and promote consumption from the root cause. At the same
time, it is necessary to improve the commercial pension insurance
system as soon as possible and steadily promote the coordinated
development of the "three pillars" pension insurance system.
Keywords: Commercial Annuity; Residents’ Consumption: Consumption
Structure; System GMM.
INTRODUCTION
In recent years, China's domestic economic growth has slowed down. How to effectively play the
role of domestic demand in driving economic growth is worth thinking about. According to
statistics from the International Monetary Fund (IMF), China’s savings rate in 2017 was 47%,
which was much higher than the world average of 26.5%., which shows the problem of "high
savings, low consumption" still troubles the Chinese economy. Therefore, seeking a panacea to
stimulate domestic demand and promote the transformation and upgrading of residents'
consumption is essential for the healthy and rapid development of China's macro economy.
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Archives of Business Research (ABR) Vol.8, Issue 8, August-2020
Judging from foreign experience, a sound social security system can help alleviate the uncertainty
of residents' future income, reduce preventive savings, and promote residents' consumption. As an
important part of the social security system, basic pension insurance helps residents to balance
their life-long welfare through the mandatory system, which in turn has an impact on residents'
consumption decisions in various periods. Beginning in the 1970s, foreign scholars began to
discuss the relationship between basic pension insurance and household consumption from a
theoretical level, and a wealth of research results have been formed for decades.
In recent years, based on the current situation of weak domestic demand in China, many Chinese
scholars have begun to conduct empirical tests on the relationship between the two variables. Due
to differences in theoretical foundations, models, and institutional factors, the research results
have not yet been unified. China’s pension insurance currently implements the internationally
popular "three-pillar" system, namely the first pillar of basic pension insurance, the second pillar
of enterprise (occupational) annuity and the third pillar of personal supplementary commercial
pension insurance. Compared with developed countries, the construction time of China's modern
pension insurance system is relatively short. The current “three-pillar” pension insurance system
is not perfect. The second pillar of enterprise annuity and the third pillar of personal commercial
pension insurance account for a relatively low proportion. Therefore, commercial annuity
insurance has broad development space in China. We cannot help asking whether the development
of commercial annuity insurance will have a positive impact on household consumption.
From previous studies, when domestic scholars discuss the impact of the current pension
insurance system on residents’ consumption, most of them are still discussing the basic pension
insurance of the first pillar. Due to the limitation of data and other factors, few scholars have
studied the effect of commercial pension insurance on consumption. In view of this, this article
attempts to discuss the changes in household consumption and its structure from the perspective
of the level of commercial annuity development, and compares the effects of basic pension
insurance and commercial annuities in alleviating resident uncertainty and promoting
consumption. This research will not only provide suggestions on the improvement and
development of the "three pillars" pension security system in China, but also effectively guide the
pension security system to give full play to the effect of stimulating domestic consumer demand.
LITERATURE REVIEW
Regarding the impact of the insurance security system on residents’ consumption, most domestic
and foreign studies have explored from the perspective of social insurance (mainly basic pension
insurance). Due to differences in research angles, institutional factors, and empirical methods,
there is no consensus on the specific impact direction of pension insurance on consumption
(Feldstein, 1974; Barro, 1974; He, et al., 2011; Bai, et al., 2012; Zhao and Li, 2017). On the one hand,
participating in endowment insurance can alleviate the uncertainty of residents' future income and
expenditure, thereby reducing preventive savings and promoting consumption. On the other hand,
it is necessary to pay a certain fee to purchase and maintain the pension insurance, which brings
certain liquidity restrictions to some families.
Because some families have target savings intentions, pension insurance may play a role in
restraining current consumption. However, there is less research on the relationship between life
insurance, annuity insurance and household consumption. Foreign scholars first discussed the
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URL: http://dx.doi.org/10.14738/abr.88.8760 112
Zhou, J. (2020). An Empirical Study On Residents' Consumption Changes Based On The Development Of Commercial Annuity. Archives of Business
Research, 8(8). 110-122.
relationship between commercial insurance and household consumption. Strain(1959) analyzed
from the perspective of average propensity to consume. He believed that when there was no
effective insurance mechanism in the society, residents tended to save part of their income in order
to cope with the uncertainty of future income and expenditure, which would keep the average
propensity to consume at a low level. Therefore, purchasing commercial insurance can help
increase the average propensity to consume. Arrow(1963) explained the role of insurance. He
mentioned that in a risky society, consumers often purchased commercial insurance in order to
ensure that their consumption plans were not affected by uncertainty. In addition, Borch(1962)
focused on the role of life insurance in alleviating the uncertainty of the future income and
expenditure of the insured. He believed that purchasing life insurance could reduce the uncertainty
of consumers' future income and promote the effect of residents' current consumption.
Domestic research on the relationship between commercial insurance and consumer consumption
is relatively lagging. Since the beginning of this century, domestic scholars have begun to conduct
empirical analysis of residents' consumption behavior from the perspective of commercial
insurance. Wang(2005) conducted a Granger causality test on China's time series data from 1984
to 2003, and found that there was no Granger causality between the growth of personal insurance
and the growth of per capita consumption.
The reason may be the low coverage rate of commercial insurance in China. Zhang(2010) used time
series data to establish a VEC model to empirically test the relationship between life insurance and
consumption, and found that life insurance had a long-term impact on residents' consumption.
Regarding the mechanism of life insurance products affecting consumption, Li, et al.(2012)
analyzed from two perspectives of annuity and non-annuity products, and verified that life
insurance could significantly promote household consumption. In recent years, domestic scholars
tend to use panel data for analysis. Shi and Sun(2014) used China’s 2002-2012 inter-provincial
panel data to explore the role of life insurance in reducing uncertainty and promoting current
consumption of residents. Nan, et al.(2020) discussed the impact of commercial insurance on
household consumption based on inter-provincial panel data, and attributed the mechanism of
promoting consumption to the reduction of uncertainty.
Judging from the scope of existing insurance, some scholars have tested the impact of commercial
insurance and life insurance on consumption, but few have targeted to the commercial annuity
insurance. In view of the shortcomings of previous research, the innovations of this article are as
follows: (1) This article attempts to analyze the consumption behavior of residents from the
perspective of the level of commercial annuity development. (2) This article also conducts a
comparative study on the impact of basic pension insurance and commercial annuity on residents'
consumption.
RESEARCH METHODOLOGY DESIGN
Model Setting
Regarding the explanation of residents' consumption behavior, Keynes first discussed it from the
perspective of absolute income theory. He believed that the consumption level of residents was
directly proportional to the absolute income level of the current period. Subsequently, the relative
income and permanent income hypotheses expanded the description of the nature of income. Ando
and Modigliani(1963) believed that consumption is related to the life cycle of an individual and