Household coping strategies and welfare : does governance matter?
Date
2012-12
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Publisher
National Council of Applied Economic Research (NCAER), New Delhi, IN
Abstract
Rural households in India are often confronted by various types of risks — covariate (e.g. natural
disasters, economic or political crisis) and idiosyncratic (e.g. illness or job-los) shocks. When
faced with such risks even non-poor members of the society can be vulnerable if it has
ineffective or constrained coping instruments. This study analyses the relationship between
shock types and coping decisions of rural households, and the impact of these coping strategies
on consumption using the ARIS/REDS panel survey data. We find that rural households will be
more vulnerable in time of covariate shocks. Social networks help to get borrowings from friends
and relatives during shocks periods. The results indicate that rural government programs
contribute significantly to manage distress shocks. We find that the coping strategies such as
savings, getting help from government, technological up-gradation and selling assets increase the
chance of consumption growth of households. Other coping strategies such as getting alternative
wage employment, getting help from relatives, and starvation are risky coping strategies and,
these decline the chance of consumption growth of households.
Overall, the results suggest that shocks experienced by rural households are likely to negatively
affect their future welfare and more effective social risk management strategies are needed. An
important policy implication of our analysis is that the government should provide readily
accessible and well targeted public safety nets. The existing informal strategy is not very
effective as a consumption insurance mechanism. Although the government coping program is
found to reduce vulnerability access to such program is constrained. Expansion of government
sponsored coping program is likely to protect households effectively from negative shocks.
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Working Paper
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Keywords
VULNERABILITY, POVERTY, COVARIATE AND IDIOSYNCRATIC SHOCKS, COPING STRATEGIES, REDS DATA, INDIA, LOCAL GOVERNMENT, VULNERABLE GROUPS, DECENTRALIZATION, INCENTIVES, RURAL AREAS, CAPACITY BUILDING