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

  • Dasgupta, Basab
  • Ajwad, Mohamed Ihsan

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.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 5926.

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Date of creation: 01 Dec 2011
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Handle: RePEc:wbk:wbrwps:5926
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  1. Christina Paxson & Norbert Schady, 2004. "Child Health and Economic Crisis in Peru," Working Papers 242, Princeton University, Woodrow Wilson School of Public and International Affairs, Center for Health and Wellbeing..
  2. Lisa Cameron, 2001. "The Impact Of The Indonesian Financial Crisis On Children: An Analysis Using The 100 Villages Data," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 37(1), pages 43-64.
  3. Sascha O. Becker & Marco Caliendo, 2007. "Sensitivity analysis for average treatment effects," Stata Journal, StataCorp LP, vol. 7(1), pages 71-83, February.
  4. World Bank, 2011. "The Jobs Crisis : Household and Government Responses to the Great Recession in Eastern Europe and Central Asia," World Bank Publications, The World Bank, number 2287, June.
  5. Case, Anne & Fertig, Angela & Paxson, Christina, 2005. "The lasting impact of childhood health and circumstance," Journal of Health Economics, Elsevier, vol. 24(2), pages 365-389, March.
  6. Aakvik, A., 1999. "Bounding a Marching Estimator: the Case of a Norwegian Training Program," Norway; Department of Economics, University of Bergen 0499, Department of Economics, University of Bergen.
  7. Sarah Baird & Jed Friedman & Norbert Schady, 2011. "Aggregate Income Shocks and Infant Mortality in the Developing World," The Review of Economics and Statistics, MIT Press, vol. 93(3), pages 847-856, August.
  8. McKenzie, David J., 2003. "How do Households Cope with Aggregate Shocks? Evidence from the Mexican Peso Crisis," World Development, Elsevier, vol. 31(7), pages 1179-1199, July.
  9. Suzanne Duryea, 1998. "Children's Advancement Through School in Brazil: The Role of Transitory Shocks to Household Income," IDB Publications (Working Papers) 5679, Inter-American Development Bank.
  10. Ferreira, Francisco H. G. & Schady, Norbert, 2008. "Aggregate economic shocks, child schooling and child health," Policy Research Working Paper Series 4701, The World Bank.
  11. Lokshin, Michael M. & Yemtsov, Ruslan, 2001. "Household strategies for coping with poverty and social exclusion in post-crisis Russia," Policy Research Working Paper Series 2556, The World Bank.
  12. Emmanuel Skoufias & Susan Parker, 2006. "Job loss and family adjustments in work and schooling during the Mexican peso crisis," Journal of Population Economics, Springer, vol. 19(1), pages 163-181, February.
  13. Thomas, Duncan & Beegle, Kathleen & Frankenberg, Elizabeth & Sikoki, Bondan & Strauss, John & Teruel, Graciela, 2004. "Education in a crisis," Journal of Development Economics, Elsevier, vol. 74(1), pages 53-85, June.
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