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Health Shocks And Consumption Smoothing In Rural Households: Does Microcredit Have A Role To Play?

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Asadul Islam
Pushkar Maitra

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Abstract

This paper estimates, using a large panel data set from rural Bangladesh, the effects of health shocks on household consumption and how access to microcredit affects households' response to such shocks. Our results suggest that even though in general consumption remains stable in many cases when households are exposed to health shocks, households that have access to microcredit appear to cope (slightly) better. The most important instrument used by households appear be sales of productive assets (livestock) and there is a significant mitigating effect of microcredit: households that have access to microcredit do not need to sell livestock to the extent households that do not have access to microcredit need to, in order to insure consumption against health shocks. The results suggest that microcredit organizations and microcredit per se have an insurance role to play, an aspect that has not been analyzed previously.

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Paper provided by Monash University, Department of Economics in its series Monash Economics Working Papers with number 22/08.

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Length: 35 pages
Date of creation: 01 Aug 2008
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Handle: RePEc:mos:moswps:2008-22

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Related research
Keywords: Health Shocks; Microcredit; Consumption Insurance; Bangladesh.;

Find related papers by JEL classification:
O12 - Economic Development, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
I10 - Health, Education, and Welfare - - Health - - - General
C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data

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  2. Jonathan Morduch, 1995. "Income Smoothing and Consumption Smoothing," Harvard Institute of Economic Research Working Papers 1727, Harvard - Institute of Economic Research.
    Other versions:
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  14. Mark M. Pitt & Shahidur R. Khandker, 1998. "The Impact of Group-Based Credit Programs on Poor Households in Bangladesh: Does the Gender of Participants Matter?," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 958-996, October. [Downloadable!] (restricted)
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