Analysis Of The Relationship Between Liquidity Constraint, Uncertainty And China Rural Residents' Consumer Behavior

From the beginning of the mid 1990s, the process of market-oriented reforms results in significant uncertainty to rural residents'income and expenditure. In addition, the long-term financial repression and the imperfect credit markets have made it inevitable that China's rural residents'consumption can be exempt from the impact of liquidity constraint. The Precautionary savings theory and the liquidity constraint theory loosens the assumption of certainty and perfect capital market which the traditional consumption theory includs. Therefore, on the basis of a comprehensive analysis of the theoretical conditions and practical circumstances, utilizing the precautionary savings and liquidity constraint theories to study China's rural household consumption behavior is of important reference and practice value.Firstly, this paper analyzes the main reasons of liquidity constraint for China's rural residents. Then it analyzes the uncertainty of China's rural residents from the perspective of uncertainty of income and expenditure. On basis of the above analysis, we establishes a precautionary savings model which contains liquidity constraint through expanding Dynan's precautionary savings model,and selects the panel data of China's rural residents from 1996 to 2007 to estimate the influence of uncertainty and liquidity constraint on China's rural residents'consumption. The Empirical results show that China's rural residents'strong precautionary motive and the existence of liquidity constraint inhibit the consumption level of rural residents. From the district point of view, rural residents in central and western regions face stronger liquidity constraint than those in the eastern region while the rural residents in eastern regions confront greater uncertainty those in central and western regions. The results of this study also show that liquidity constraint reduce the precautionary saving motive caused by uncertainty. Lastly, we can propose policy suggestions to reduce the tight liquidity constraint and the increasing uncertainty in China's rural areas.