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Risk Pooling through Transfers in Rural Ethiopia

  • Lei Pan
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It is often assumed that transfers received from government, nongovernment organizations (NGOs), friends, and relatives help rural households to pool risk. In this article I investigate two functions of transfers in Ethiopia: risk pooling and income redistribution. Unlike most of the literature, this article investigates not only whether but also how much risk pooling is achieved. I find evidence that transfers from government/NGOs play a role in insuring covariant income shocks and evidence that transfers from both government/NGOs and friends/relatives redistribute income. However, the contributions of these transfers to risk pooling and income redistribution are economically very limited. Moreover, transfers from friends/relatives do not play a role in risk sharing. Although transfers only play a minor role in risk pooling, households in the study villages are found to be able to insure most of their idiosyncratic income shocks and part of their covariant income shocks. (c) 2009 by The University of Chicago. All rights reserved.

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Article provided by University of Chicago Press in its journal Economic Development and Cultural Change.

Volume (Year): 57 (2009)
Issue (Month): 4 (07)
Pages: 809-835

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Handle: RePEc:ucp:ecdecc:v:57:y:2009:i:4:p:809-835
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  1. Stefan Dercon & Pramila Krishnan, 1998. "Changes in Poverty in Rural Ethiopia 1989-1995: Measurement, Robustness Tests and Decomposition," Center for Economic Studies - Discussion papers ces9819, Katholieke Universiteit Leuven, Centrum voor Economische Studiƫn.
  2. Kinsey, Bill & Burger, Kees & Gunning, Jan Willem, 1998. "Coping with drought in Zimbabwe: Survey evidence on responses of rural households to risk," World Development, Elsevier, vol. 26(1), pages 89-110, January.
  3. Jalan, Jyotsna & Ravallion, Martin, 1997. "Are the poor less well-insured? Evidence on vulnerability to income risk in rural China," Policy Research Working Paper Series 1863, The World Bank.
  4. Grimard, Franque, 1997. "Household consumption smoothing through ethnic ties: evidence from Cote d'Ivoire," Journal of Development Economics, Elsevier, vol. 53(2), pages 391-422, August.
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