Poverty risk and consumption smoothing abilities in Russia
AbstractThis paper investigates to what extent Russian households have been able to protect their consumption against income shocks during the transition and in what manner the ability to smooth consumption is related to poverty risk. We use data from the Russian Longitudinal Monitoring Survey (1994-2004). Empirical analyses of such panels have often been based on differenced data in order to eliminate individual household effects. An innovative aspect of this study is that we model households smoothing behaviour by means of an Error Correction Mechanism (ECM); this model explicitly distinguishes between short and long run dynamics of consumption and income and thus better exploits the information in the level data. We find that households are only partially able to protect their consumption from income shocks and that income shocks have a smaller impact on food consumption than on non-food consumption. The results also suggest that the population is not homogeneous in terms of consumption smoothing abilities; partial estimations show that consumption smoothing ability improve as the living standard increases. However, below average consumption smoothing abilities are not always associated with higher poverty risk; rural households, who have a high poverty risk, manage to smooth food expenditures quite well, most likely because they have more opportunities to produce their own food. These exploratory results suggest that development and social protection policies should not only play a role in terms of poverty reduction but also influence households' abilities to manage risks.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 5314.
Date of creation: Sep 2006
Date of revision: 27 Jul 2007
poverty; consumption smoothing; error correction model; Russia;
Find related papers by JEL classification:
- D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
- D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
- I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-10-20 (All new papers)
- NEP-CIS-2007-10-20 (Confederation of Independent States)
- NEP-TRA-2007-10-20 (Transition Economics)
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