Coping with shocks in rural Ethiopia

Based on household survey data and event history interviews undertaken in a highly shock prone country, this paper investigates which shocks trigger which coping responses and why? We find clear differences in terms of coping strategies across shock types. The two relatively covariate shocks, that is, economic and natural shocks are more likely to trigger reductions in savings and in food consumption while the sale of assets and borrowing is less common. Coping with relatively idiosyncratic health shocks is met by reductions in savings, asset sales and especially a far greater reliance on borrowing as compared to other shocks. Reductions in food consumption, a prominent response in the case of natural and economic shocks is notably absent in the case of health shocks. Across all shock types, households do not rely on gifts from family and friends or on enhancing their labour supply as coping approaches. The relative insensitivity of food consumption to health shocks based on the shocks-coping analysis presented here is consistent with existing work which examines consumption insurance. However, our analysis leads to a different interpretation. We argue that this insensitivity should not be viewed as insurability of food consumption against health shocks but rather as an indication that a reduction in food consumption is not a viable coping response to a health shock as it does not provide cash to meet health care needs.