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Is Consumption Insured against Illness? Evidence on Vulnerability of Households to Health Shocks in Rural Ethiopia

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Author Info

  • Asfaw, Abay
  • von Braun, Joachim

Abstract

Low and volatile incomes and absence of well-developed financial markets make consumption smoothing an important issue in low-income countries. Based on the theory of full insurance and using 2 years of panel data, this study examines the impact of illness on the consumption of rural households and the capacity of existing risk-sharing mechanisms in insuring consumption against health shocks in the rural areas of Ethiopia. The results show that illness has a statistically significant negative impact on the stability of consumption and the capacity of households or existing intra- and interhousehold risk-sharing arrangements in insuring consumption against illness varies across different consumption items. The regression results show that the hypothesis of consumption insurance cannot be rejected in the case of total food consumption, implying that basic items that come from own production and from external sources (gifts) are better insured and insensitive to the illness of the head. However, the implication of risk sharing is rejected in the case of nonfood consumption items. The restriction test results reveal that the movement of the household head from a healthy to an unhealthy status would lower the growth rate of quarterly nonfood consumption items of the household by more than 24 percentage points. This clearly demonstrates that there would be a significant amount of welfare gain if existing endogenous risk sharing arrangements can be strengthened or some kind of community health insurance scheme can be introduced in the rural areas of Ethiopia.

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Bibliographic Info

Article provided by University of Chicago Press in its journal Economic Development and Cultural Change.

Volume (Year): 53 (2004)
Issue (Month): 1 (October)
Pages: 115-29

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Handle: RePEc:ucp:ecdecc:y:2004:v:53:i:1:p:115-29

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Web page: http://www.journals.uchicago.edu/EDCC/

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Cited by:
  1. Jacky MATHONNAT & Jean-François BRUN & Martine AUDIBERT & Marie-Claire HENRY, 2006. "Malaria, Production and Income of the Producers of Coffee and Cocoa: an Analysis from Survey Data in Côte d’Ivoire. Malaria, coffee and cocoa production and income," Working Papers 200631, CERDI.
  2. Bratti, Massimiliano & Mendola, Mariapia, 2014. "Parental health and child schooling," Journal of Health Economics, Elsevier, vol. 35(C), pages 94-108.
  3. Verpoorten, Marijke, 2009. "Household coping in war- and peacetime: Cattle sales in Rwanda, 1991-2001," Journal of Development Economics, Elsevier, vol. 88(1), pages 67-86, January.
  4. Krishna, Anirudh, 2007. "For Reducing Poverty Faster: Target Reasons Before People," World Development, Elsevier, vol. 35(11), pages 1947-1960, November.
  5. Lena Giesbert & Kati Schindler, 2010. "Assets, Shocks, and Poverty Traps in Rural Mozambique," GIGA Working Paper Series 150, GIGA German Institute of Global and Area Studies.
  6. Gabriela Flores & Owen O'Donnell, 2012. "Catastrophic Medical Expenditure Risk," Tinbergen Institute Discussion Papers 12-078/3, Tinbergen Institute.
  7. Islam, Asadul & Maitra, Pushkar, 2012. "Health shocks and consumption smoothing in rural households: Does microcredit have a role to play?," Journal of Development Economics, Elsevier, vol. 97(2), pages 232-243.
  8. Hanjra, Munir A. & Ferede, Tadele & Gutta, Debel Gemechu, 2009. "Pathways to breaking the poverty trap in Ethiopia: Investments in agricultural water, education, and markets," Agricultural Water Management, Elsevier, vol. 96(11), pages 1596-1604, November.
  9. Wagstaff, Adam & Lindelow, Magnus, 2010. "Are health shocks different ? evidence from a multi-shock survey in Laos," Policy Research Working Paper Series 5335, The World Bank.
  10. Gabriela Flores & Owen O'Donnell, 2012. "Catastrophic Medical Expenditure Risk," Tinbergen Institute Discussion Papers 12-078/3, Tinbergen Institute.

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