Income Shocks, Coping Strategies, and Consumption Smoothing. An Application to Indonesian Data
AbstractUsing the Indonesian Family Life Survey, this study investigates whether Indonesian farmers respond differently to income shocks (crop loss) depending on the level of their asset ownership, and whether their responses are aimed at preserving consumption levels or at accumulating assets. We consider a framework in which assets contribute directly to the income generation process. In this context the need to accumulate assets to ensure future income may lead poor farmers (those with a low level of productive assets) to behave quite differently in terms of both their responses to shocks and their consumption decisions. For them transitory shocks may have long term consequences when the income loss leads to changes in their asset investment decisions. Our results suggest that while non-poor farmers smooth consumption relative to income, poor households use labor supply to compensate the income loss and, on average, they save half of this extra income. These results confirm the importance of savings for poor households, and highlight a crucial role for policies that support savings or, more precisely, the accumulation of productive assets.
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Bibliographic InfoPaper provided by Department of Economics, University of Trento, Italia in its series Department of Economics Working Papers with number 0901.
Date of creation: 2009
Date of revision:
income shocks; consumption smoothing; asset smoothing;
Other versions of this item:
- Berloffa, Gabriella & Modena, Francesca, 2013. "Income shocks, coping strategies, and consumption smoothing: An application to Indonesian data," Journal of Asian Economics, Elsevier, vol. 24(C), pages 158-171.
- D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- O12 - Economic Development, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-02-22 (All new papers)
- NEP-DEV-2009-02-22 (Development)
- NEP-MAC-2009-02-22 (Macroeconomics)
- NEP-SEA-2009-02-22 (South East Asia)
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