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Consumption Smoothing and Vulnerably in rural villages of Ethiopia.


Using panel data of year long intensive monitoring rural household survey, the study examines that covariant shocks lead to changes in consumption patterns while specific idiosyncratic shocks appear to be fully insured against. It is found out that to insure idiosyncratic shocks households use different copying strategies. However, during the surveys period households were less likely to sell livestock/livestock products to smoothen income shock caused by rainfall and crops failure due to frost/low temperature, water logging/flooding, insects etc. At the incidence of such shocks, households tend to seek for wage employment opportunities but are compelled to sell livestock/livestock products only in the absence of market for wage employment.

The impact of changes in total household income on consumption with controls for idiosyncratic shocks were also investigated and found that households are smoothing their consumption evenly across time. Further test of consumption smoothing (using average village income controlling for idiosyncratic shocks) indicated that there is a limit to which households insure against shocks through better-off households within the communities, i.e., the hypothesis of complete insurance is rejected.

Disaggregating a sample of farming households into asset poor and nonpoor, the study has also shown that asset poor households are more diversifying income sources than asset nonpoor households. However, most of them are with low returns; and hence they are more vulnerable than asset nonpoor households. Finally, since covariate shocks are stronger in explaining consumption patterns, the paper recommends that, community or group based interventions are essential.

Corporate Author: 
Getnet Alemu & []. & Ethiopian Economic Association/Ethiopian Economic Policy Research Institute
Ethiopian Economic Association (EEA)
Primary Descriptors: 

Idiosyncratic shocks

Geographic Descriptors: 
Ethiopia, rural
Cataloge Date: 
Broad Subject heading: 
Call Number: 
330.963 PRO 2006
Serial Key Title: 
Proceedings of the Third International Conference on the Ethiopian Economy
Publication catagory: 
Content type: 
Publication date: 
2013-05-27 23:06:00
Forum or Discussion date: 
2013-02-27 15:02:02
Place of publication: 
Addis Ababa, Ethiopia
Type of material: 
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