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Income shocks reduce human capital investments : evidence from five east European countries

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  • Dasgupta, Basab
  • Ajwad, Mohamed Ihsan

Abstract

This paper empirically investigates whether households affected by income shocks cope by reducing human capital investments. The analysis uses Crisis Response Surveys conducted in Armenia, Bulgaria, Montenegro, Romania, and Turkey during 2009 and 2010. A propensity score matching technique is adopted to compare health and education investment decisions among households that were affected by income shocks to the matched comparison group. The authors find that households affected by income shocks reduced some human capital investments. Interestingly, households in these five countries were more likely to adopt health-related coping strategies as opposed to education-related coping strategies. The results from Armenia, Bulgaria, Montenegro, and Turkey show that households affected by income shocks reduced their visits to doctors and reduced their spending on medicine and medical care significantly more than the matched comparison group. Households affected by income shocks reduced their education investments, but did not adopt harmful education-related coping strategies, such as withdrawing children from schools or moving children from costly private to cheaper public schools. These findings reveal that long-term and possibly intergenerational household welfare could be affected by short-run income shocks and hence underscore the need for governments to employ mitigation measures.

Suggested Citation

  • Dasgupta, Basab & Ajwad, Mohamed Ihsan, 2011. "Income shocks reduce human capital investments : evidence from five east European countries," Policy Research Working Paper Series 5926, The World Bank.
  • Handle: RePEc:wbk:wbrwps:5926
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    Cited by:

    1. Ajwad, Mohamed Ihsan & Haimovich, Francisco & Azam, Mehtabul, 2012. "Simulating the impact of the 2009 financial crisis on welfare in Latvia," Policy Research Working Paper Series 5960, The World Bank.
    2. Nikoloski, Zlatko & Ajwad, Mohamed Ihsan, 2013. "Do economic crises lead to health and nutrition behavior responses ? analysis using longitudinal data from Russia," Policy Research Working Paper Series 6538, The World Bank.
    3. Otker-Robe, Inci & Podpiera, Anca Maria, 2013. "The social impact of financial crises: evidence from the global financial crisis," Policy Research Working Paper Series 6703, The World Bank.
    4. Gagik Makaryan & Mihran Galstyan, 2013. "Costs and Benefits of Labour Mobility between the EU and the Eastern Partnership Partner Countries. Country report: Armenia," CASE Network Studies and Analyses 0461, CASE-Center for Social and Economic Research.
    5. Ziv Chinzara & Radhika Lahiri, 2012. "Financial Intermediation and Costly Technology Adoption under Uncertainty: A Political Economy Perspective," School of Economics and Finance Discussion Papers and Working Papers Series 295, School of Economics and Finance, Queensland University of Technology.
    6. Mohamed Ihsan Ajwad & Miglena Abels & Marina Novikova & Muderis Abdulahi Mohammed, 2018. "Financing Social Protection in Tanzania," World Bank Publications - Reports 30513, The World Bank Group.

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    Keywords

    Health Monitoring&Evaluation; Health Systems Development&Reform; Labor Policies; Inequality; Debt Markets;
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