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Vulnerability of Household Consumption to Village-level Aggregate Shocks in a Developing Country

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  • Kurosaki, Takashi

Abstract

Village-level aggregate shocks such as droughts and floods cannot be perfectly insured by risk sharing within a village. Then, what type of households are more vulnerable in terms of a decline in consumption when a village is hit by such natural disasters? This question is investigated in this study by using two-period panel data for the years 2001 and 2004 from rural Pakistan. We propose a methodology to infer the theoretical mechanisms underlying the heterogeneity of households in terms of their vulnerability, and focus on the difference between the across-household-type difference in marginal response to aggregate shocks and that in marginal response to idiosyncratic shocks. The empirical results obtained indicate that the sensitivity of consumption changes to shocks differs across household types, depending on the type of natural disasters. Moreover, land and credit access are effective in mitigating the ill-effects of various types of shocks. Household heads who are educated or elderly and households with a greater number of working members bear a larger burden of the village-level shocks; however, they are not vulnerable to idiosyncratic health shocks. It is revealed that these patterns may be explained by the coexistence of unequal access to credit markets and risk sharing among heterogeneous households in terms of risk tolerance.

Suggested Citation

  • Kurosaki, Takashi, 2011. "Vulnerability of Household Consumption to Village-level Aggregate Shocks in a Developing Country," PRIMCED Discussion Paper Series 8, Institute of Economic Research, Hitotsubashi University.
  • Handle: RePEc:hit:primdp:8
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    File URL: http://hermes-ir.lib.hit-u.ac.jp/hermes/ir/re/18974/No8-dp_10_08.pdf
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    References listed on IDEAS

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    Cited by:

    1. Gaurav, Sarthak, 2015. "Are Rainfed Agricultural Households Insured? Evidence from Five Villages in Vidarbha, India," World Development, Elsevier, vol. 66(C), pages 719-736.
    2. Kurosaki, Takashi & Khan, Humayun & Shah, Mir Kalan & Tahir, Muhammad, 2011. "Natural Disasters, Relief Aid, and Household Vulnerability in Pakistan: Evidence from a Pilot Survey in Khyber Pakhtunkhwa," PRIMCED Discussion Paper Series 12, Institute of Economic Research, Hitotsubashi University.

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    More about this item

    Keywords

    natural disaster; consumption smoothing; risk sharing; self-insurance; Pakistan;
    All these keywords.

    JEL classification:

    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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