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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. Takahiro Ito & Takashi Kurosaki, 2007. "Weather Risk, Wages in Kind, and the Off-Farm Labor Supply of Agricultural Households in a Developing Country," Hi-Stat Discussion Paper Series d07-226, Institute of Economic Research, Hitotsubashi University.
    2. 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.
    3. Noy, Ilan, 2009. "The macroeconomic consequences of disasters," Journal of Development Economics, Elsevier, vol. 88(2), pages 221-231, March.
    4. Deaton, A. & Zaidi, S., 1999. "Guidelines for Constructing Consumption Aggregates for Welfare Analysis," Papers 192, Princeton, Woodrow Wilson School - Development Studies.
    5. Takashi Kurosaki, 2006. "Consumption vulnerability to risk in rural Pakistan," Journal of Development Studies, Taylor & Francis Journals, vol. 42(1), pages 70-89.
    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. 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.
    8. James Foster & Indranil Dutta & Ajit Mishra, 2010. "On Measuring Vulnerability to Poverty," Working Papers 2010-13, The George Washington University, Institute for International Economic Policy.
    9. 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.
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