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Financial Consequences of Ill Health and Informal Coping Mechanisms in Indonesia

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  • Robert Sparrow
  • Ellen Van de Poel
  • Gracia Hadiwidjaja
  • Athia Yumna
  • Nila Warda
  • Asep Suryahadi

Abstract

We assess the financial risk of ill health for households in Indonesia, the role of informal coping strategies, and the effectiveness of these strategies in smoothing consumption. Based on household panel data, we find evidence of financial risk from illness through medical expenses, while income from informal wage labour is exposed to risk for the poor and income from self-employed business activities for the non-poor. However, this lead to imperfect consumption smoothing only for the rural population and the poorest quartile; the non-poor seem to be able to maintain current spending. Borrowing and drawing on buffers, such as savings and assets, seem to be key informal coping strategies for the poor, which infers potential negative long term effects. While these results suggest scope for public intervention, the financial risk from income loss for the rural poor is beyond public health care financing reforms. Rather, formal sector employment, which reduces income risks, seems to be a key instrument for financial protection from illness.

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Bibliographic Info

Paper provided by The Australian National University, Arndt-Corden Department of Economics in its series Departmental Working Papers with number 2012-07.

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Length: 32
Date of creation: 2012
Date of revision:
Handle: RePEc:pas:papers:2012-07

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Keywords: Illness; income; consumption smoothing; coping strategies; Indonesia;

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  1. Gertler, Paul & Levine, David I. & Moretti, Enrico, 2003. "Do Microfinance Programs Help Families Insure Consumption Against Illness?," Center for International and Development Economics Research, Working Paper Series qt5811j217, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
  2. Paul Gertler & Jonathan Gruber, 1998. "Insuring Consumption Against Illness," JCPR Working Papers 41, Northwestern University/University of Chicago Joint Center for Poverty Research.
  3. Joao Santos Silva & Silvana Tenreyro, 2005. "The log of gravity," LSE Research Online Documents on Economics 3744, London School of Economics and Political Science, LSE Library.
  4. Wagstaff, Adam & Paci, Pierella & van Doorslaer, Eddy, 1991. "On the measurement of inequalities in health," Social Science & Medicine, Elsevier, vol. 33(5), pages 545-557, January.
  5. Townsend, R.M., 1991. "Risk and Insurance in Village India," University of Chicago - Economics Research Center 91-3, Chicago - Economics Research Center.
  6. Asadul Islam & Pushkar Maitra, 2008. "Health Shocks And Consumption Smoothing In Rural Households: Does Microcredit Have A Role To Play?," Development Research Unit Working Paper Series 22/08, Monash University, Department of Economics.
  7. Manning, Willard G. & Mullahy, John, 2001. "Estimating log models: to transform or not to transform?," Journal of Health Economics, Elsevier, vol. 20(4), pages 461-494, July.
  8. Sparrow, Robert & Suryahadi, Asep & Widyanti, Wenefrida, 2013. "Social health insurance for the poor: Targeting and impact of Indonesia's Askeskin programme," Social Science & Medicine, Elsevier, vol. 96(C), pages 264-271.
  9. Nguyen Thi Nhu Nguyet & Eiji Mangyo, 2010. "Vulnerability of households to health shocks: an Indonesian study," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 46(2), pages 213-235.
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  12. Erreygers G., 2006. "Correcting the Concentration Index," Working Papers 2006027, University of Antwerp, Faculty of Applied Economics.
  13. Kochar, Anjini, 1995. "Explaining Household Vulnerability to Idiosyncratic Income Shocks," American Economic Review, American Economic Association, vol. 85(2), pages 159-64, May.
  14. Wagstaff, Adam, 2007. "The economic consequences of health shocks: Evidence from Vietnam," Journal of Health Economics, Elsevier, vol. 26(1), pages 82-100, January.
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