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Vulnerability of household consumption to floods and droughts in developing countries: evidence from Pakistan

Published online by Cambridge University Press:  15 May 2014

Takashi Kurosaki
Takashi Kurosaki*
Affiliation:
Institute of Economic Research, Hitotsubashi University, 2-1 Naka, Kunitachi, Tokyo 186-8603, Japan. Tel: +81-42-580-8363. Fax: +81-42-580-8333. E-mail: kurosaki@ier.hit-u.ac.jp
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Abstract

Aggregate shocks such as droughts and floods cannot be perfectly insured by risk sharing within a village. Given this inability, what type of households are more vulnerable in terms of a decline in consumption when a village is hit by such shocks and what kind of microeconomic mechanism underlies the household heterogeneity in vulnerability? These questions are investigated using two-period panel data collected in rural Pakistan in 2001 and 2004. We compare consumption response to droughts, floods and health shocks and investigate how the response differs across different types of households. Empirical results show that the impact of droughts was negligible, younger and more landed households were less vulnerable to floods, and households with greater access to formal financial institutions were less vulnerable to idiosyncratic health shocks. The empirical pattern suggests the possibility of risk sharing among households that are heterogeneous in both risk aversion and credit access.

Type
Research Article
Information
Environment and Development Economics , Volume 20 , Issue 2 , April 2015 , pp. 209 - 235
Copyright
Copyright © Cambridge University Press 2014 

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