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

  • Kurosaki, Takashi
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    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.

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    File URL: http://hermes-ir.lib.hit-u.ac.jp/rs/bitstream/10086/18974/1/No8-dp_10_08.pdf
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    Paper provided by Institute of Economic Research, Hitotsubashi University in its series PRIMCED Discussion Paper Series with number 8.

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    Length: 36 p.
    Date of creation: Feb 2011
    Date of revision:
    Handle: RePEc:hit:primdp:8
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    1. Pierfederico Asdrubali & Soyoung Kim, 2007. "Incomplete Intertemporal Consumption Smoothing and Incomplete Risksharing," Discussion Paper Series 0725, Institute of Economic Research, Korea University.
    2. Yasuyuki Sawada, 2007. "The impact of natural and manmade disasters on household welfare," Agricultural Economics, International Association of Agricultural Economists, vol. 37(s1), pages 59-73, December.
    3. Ethan Ligon & Jonathan P. Thomas & Tim Worrall, 2000. "Mutual Insurance, Individual Savings and Limited Commitment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(2), pages 216-246, April.
    4. Amin, S. & Rai, A.S. & Topa, G., 2000. "Does Microcredit Reach the Poor and Vulnerable? Evidence from Nothern Bangladesh," Papers 28, Chicago - Graduate School of Business.
    5. Skoufias, Emmanuel & Quisumbing, Agnes R., 2004. "Consumption insurance and vulnerability to poverty : a synthesis of the evidence from Bangladesh, Ethiopia, Mali, Mexico and Russia," Social Protection Discussion Papers 29141, The World Bank.
    6. Jalan, Jyotsna & Ravallion, Martin, 1999. "Are the poor less well insured? Evidence on vulnerability to income risk in rural China," Journal of Development Economics, Elsevier, vol. 58(1), pages 61-81, February.
    7. Glewwe, Paul & Hall, Gillette, 1998. "Are some groups more vulnerable to macroeconomic shocks than others? Hypothesis tests based on panel data from Peru," Journal of Development Economics, Elsevier, vol. 56(1), pages 181-206, June.
    8. G. M. Arif & Faiz Bilquees, 2007. "Chronic and Transitory Poverty in Pakistan: Evidence from a Longitudinal Household Survey," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 46(2), pages 111-127.
    9. Cesar Calvo & Stefan Dercon, 2005. "Measuring Individual Vulnerability," Economics Series Working Papers 229, University of Oxford, Department of Economics.
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