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How do rural households respond to economic shocks? Insights from hierarchical analysis using global data

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  • Börner, Jan
  • Shively, Gerald E.
  • Wunder, Sven
  • Wyman, Miriam

Abstract

Unanticipated events can cause considerable economic hardship for poor rural households. Some types of negative shocks, for example weather-related agricultural losses and vector-borne diseases, are expected to occur more frequently as a result of climate change. This paper measures the role of household- and location-specific characteristics in conditioning behavioral responses to idiosyncratic and covariate shocks. We use data from more than 8000 households in 25 developing countries, compiled in the global database of the Poverty Environment Network (PEN). We employ a hierarchical multinomial logit model to identify the importance of characteristics observed at different levels of aggregation on a set of responses to economic shocks. Results indicate that in response to idiosyncratic shocks, households tend to deplete financial and durable assets, whereas covariate shocks predominantly result in reduced consumption. Households in sites characterized by high asset wealth tend to respond to shocks more proactively than in sites with average or below average asset wealth; savings emerge as an important determinant of shock response behavior at the household level. We also find that a higher concentration of land ownership at the village level reduces the prevalence of natural resource-based coping strategies. Overall, rural households are less reliant on natural resource extraction for coping than expected from the case-study literature. Our findings have implications for rural development and climate change adaptation strategies.

Suggested Citation

  • Börner, Jan & Shively, Gerald E. & Wunder, Sven & Wyman, Miriam, 2012. "How do rural households respond to economic shocks? Insights from hierarchical analysis using global data," 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil 126143, International Association of Agricultural Economists.
  • Handle: RePEc:ags:iaae12:126143
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    References listed on IDEAS

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    1. Morsello, Carla & Delgado, Juliana Aparecida da Silva & Fonseca-Morello, Thiago & Brites, Alice Dantas, 2014. "Does trading non-timber forest products drive specialisation in products gathered for consumption? Evidence from the Brazilian Amazon," Ecological Economics, Elsevier, vol. 100(C), pages 140-149.

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    Keywords

    Farm Management; Risk and Uncertainty;

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