Channels of impoverishment due to ill-health in rural Ethiopia

We analyse the effects of ill-health on household economic outcomes in Ethiopia, using three years of household panel data and event history interviews. We examine the immediate effects of a variety of ill-health measures on health expenditure and labour supply, the subsequent household coping responses, and finally the effect on household income and consumption. We find evidence of substantial economic risk in terms of increased health expenditure and reduced agricultural productivity. Households cope by resorting to intra-household labour substitution, hiring wage labour, borrowing and depleting assets. While households are able to maintain food consumption, we observe imperfect insurance of non-food consumption. This effect is larger for households with the lowest ability to self-insure. Maintaining current consumption through borrowing and depletion of assets and savings is unlikely to be sustainable and displays the need for interventions that work towards reducing the financial consequences of ill-health.