Shocks and mental health: Panel data evidence from South Africa

Households in developing countries are subject to considerable risk and shocks, but most can’t deal with them using formal credit and insurance mechanisms. We use five rounds of the South African NIDS panel data and investigate the links between shocks and mental health as measured by the Center for Epidemiological Studies - Depression Scale (CES-D). We find that experiencing idiosyncratic shocks, more importantly, the death of a family member is significantly associated with poor mental health. The magnitude increases by almost twofold when death happens unexpectedly, i.e., due to an accident or violence, and increases by 35% when the deceased is a close family member of the respondent. We argue that two plausible mechanisms could explain the links between the death of a household member and mental health - bereavement and loss of income. Our results offer suggestive evidence of the large scope for improving welfare further through social support and insurance mechanisms. The results also imply the importance of expanding psychiatric and therapeutic care in Africa, which currently appears to be at the lowest level compared to the rest of the world.