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Vulnerability of Household Consumption to Floods and Droughts in Developing Countries: Evidence from Pakistan

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  • Kurosaki, Takashi
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    Abstract

    Aggregate shocks such as droughts and floods cannot be perfectly insured by risk sharing within a village. Given this inability, what type of households are more vulnerable in terms of a decline in consumption when a village is hit by such shocks and what kind of microeconomic mechanism underlies the household heterogeneity in vulnerability? These questions are investigated using two-period panel data collected in rural Pakistan in 2001 and 2004. We compare consumption response to droughts, floods, and health shocks and investigate how the response differs across different types of households. Empirical results show that the impact of droughts was negligible, younger and more landed households were less vulnerable to floods, and households with greater access to formal financial institutions were less vulnerable to idiosyncratic health shocks. The empirical pattern suggests the possibility of risk sharing among households that are heterogeneous in both risk aversion and credit access.

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    File URL: http://hermes-ir.lib.hit-u.ac.jp/rs/bitstream/10086/25634/1/wp2012-10.pdf
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    Bibliographic Info

    Paper provided by Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University in its series CEI Working Paper Series with number 2012-10.

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    Length: 34, 13 p.
    Date of creation: Mar 2013
    Date of revision:
    Handle: RePEc:hit:hitcei:2012-10

    Note: March 2013
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    Keywords: natural disaster; consumption smoothing; risk sharing; self-insurance; Pakistan;

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    1. Angus Deaton & Salman Zaidi, 1999. "Guidelines for Constructing Consumption Aggregates For Welfare Analysis," Working Papers 217, Princeton University, Woodrow Wilson School of Public and International Affairs, Research Program in Development Studies..
    2. Ilan Noy, 2007. "The Macroeconomic Consequences of Disasters," Working Papers 200707, University of Hawaii at Manoa, Department of Economics.
    3. Kurosaki, Takashi & Fafchamps, Marcel, 2002. "Insurance market efficiency and crop choices in Pakistan," Journal of Development Economics, Elsevier, vol. 67(2), pages 419-453, April.
    4. Coffman, Makena & Noy, Ilan, 2012. "Hurricane Iniki: measuring the long-term economic impact of a natural disaster using synthetic control," Environment and Development Economics, Cambridge University Press, vol. 17(02), pages 187-205, April.
    5. Indranil Dutta & James Foster & Ajit Mishra, 2011. "On measuring vulnerability to poverty," Social Choice and Welfare, Springer, vol. 37(4), pages 743-761, October.
    6. de Janvry, Alain & Fafchamps, Marcel & Sadoulet, Elisabeth, 1991. "Peasant Household Behaviour with Missing Markets: Some Paradoxes Explained," Economic Journal, Royal Economic Society, vol. 101(409), pages 1400-417, November.
    7. Takahiro Ito & Takashi Kurosaki, 2007. "Weather Risk, Wages in Kind, and the Off-Farm Labor Supply of Agricultural Households in a Developing Country," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(3), pages 697-710.
    8. Kurosaki, Takashi, 2001. "Consumption Smoothing and the Structure of Risk and Time Preferences:Theory and Evidence from Village India," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 42(2), pages 103-117, December.
    9. Takashi Kurosaki, 2006. "Consumption vulnerability to risk in rural Pakistan," Journal of Development Studies, Taylor & Francis Journals, vol. 42(1), pages 70-89.
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