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Income shocks, coping strategies, and consumption smoothing: An application to Indonesian data

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  • Berloffa, Gabriella
  • Modena, Francesca

Abstract

Using 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 to behave quite differently in terms of both their responses to shocks and their consumption 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.

Suggested Citation

  • 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.
  • Handle: RePEc:eee:asieco:v:24:y:2013:i:c:p:158-171
    DOI: 10.1016/j.asieco.2012.11.004
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    Cited by:

    1. Francesca Modena & Christopher L. Gilbert, 2012. "Household Responses to Economic and Demographic Shocks: Marginal Logit Analysis using Indonesian Data," Journal of Development Studies, Taylor & Francis Journals, vol. 48(9), pages 1306-1322, September.
    2. Shaikh, Salman Ahmed, 2015. "Financial Inclusiveness in Islamic Banking: Comparison of Ideals and Practices Based on Maqasid-e-Shari’ah," MPRA Paper 68745, University Library of Munich, Germany.
    3. Azomahou T.T. & Yitbarek E., 2015. "Poverty persistence and informal risk management: Micro evidence from urban Ethiopia," MERIT Working Papers 006, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    4. repec:spr:jqecon:v:16:y:2018:i:1:d:10.1007_s40953-017-0073-8 is not listed on IDEAS
    5. Kumar, Neha & Quisumbing, Agnes R., 2014. "Gender and resilience:," IFPRI book chapters,in: Fan, Shenggen & Pandya-Lorch, Rajul & Yosef, Sivan (ed.), 2013 Global Food Policy Report, chapter 17 International Food Policy Research Institute (IFPRI).
    6. repec:spr:ediscc:v:2:y:2018:i:2:d:10.1007_s41885-017-0022-1 is not listed on IDEAS
    7. Vial, Virginie & Hanoteau, Julien, 2015. "Returns to Micro-Entrepreneurship in an Emerging Economy: A Quantile Study of Entrepreneurial Indonesian Households’ Welfare," World Development, Elsevier, vol. 74(C), pages 142-157.
    8. Kailash Chandra Pradhan & Shrabani Mukherjee, 2018. "Covariate and Idiosyncratic Shocks and Coping Strategies for Poor and Non-poor Rural Households in India," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 16(1), pages 101-127, March.
    9. Elisabetta De Antoni, 2009. "Money and finance: the heterodox views of R. Clower, A. Leijonhufvud and H. Minsky," Department of Economics Working Papers 0908, Department of Economics, University of Trento, Italia.

    More about this item

    Keywords

    Shocks; Coping strategies; Consumption smoothing; Asset smoothing;

    JEL classification:

    • 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, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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