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Income Shocks and Household Risk-Coping Strategies: Evidence from Rural Vietnam

Author

Listed:
  • Carol Newman

    (Institute for International Integration Studies, Trinity College Dublin; Department of Economics, Trinity College Dublin)

  • Fiona Wainwright

    (Department of Economics, Trinity College Dublin)

Abstract
This paper considers the various strategies rural households employ to avoid consumption shortfalls caused by realizations of adverse income shocks. First, we develop an ex post theoretical model within an inter-temporal utility maximizing framework which we use to explain households’ decisions to insure against idiosyncratic risk and save to protect against uninsurable spatially covariant risk. In the theoretical model we show that the latter can take a variety of different asset forms depending on the absolute level of risk aversion of the household and the variability in asset returns. Second, using household level panel data from Vietnam we test the extent to which households’ smooth consumption over time and how this depends on the presence of insurance and saving instruments. Third, we consider savings and liquid asset holdings as a form of self-insurance or precautionary savings against spatially covariant shocks. Overall, our results suggest that households deplete their stock of total liquid assets in the event of exposure to both exogenous and idiosyncratic income shocks. The ability of households to cope is also dependent on their receipt of public and private transfers in the event of an exogenous natural shock with insurance claims serving to alleviate the depletion of livestock holdings in the event of insurable idiosyncratic income shocks. These results are particularly pronounced for low and middle wealth groups.

Suggested Citation

  • Carol Newman & Fiona Wainwright, 2011. "Income Shocks and Household Risk-Coping Strategies: Evidence from Rural Vietnam," The Institute for International Integration Studies Discussion Paper Series iiisdp358, IIIS.
    • Handle: RePEc:iis:dispap:iiisdp358
    as

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    References listed on IDEAS

    as
    1. Luigi Ventura, 2007. "A note on the relevance of prudence in precautionary saving," Economics Bulletin, AccessEcon, vol. 4(23), pages 1-11.
    2. Gregory Connor & Lisa R. Goldberg & Robert A. Korajczyk, 2010. "Portfolio Risk Analysis," Economics Books, Princeton University Press, edition 1, number 9224.
    3. repec:ebl:ecbull:v:4:y:2007:i:23:p:1-11 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Newman, Carol & Tarp, Finn, 2020. "Shocks and agricultural investment decisions," Food Policy, Elsevier, vol. 94(C).
    2. Grote, Ulrike & Waibel, Hermann, 2017. "Rural-Urban Migration, Welfare and Employment : Comparing Results from Thailand and Vietnam," 2017 ASAE 9th International Conference, January 11-13, Bangkok, Thailand 284809, Asian Society of Agricultural Economists (ASAE).
    3. Carol Newman & Finn Tarp & Katleen Van Den Broeck, 2014. "Social Capital, Network Effects, and Savings in Rural Vietnam," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 60(1), pages 79-99, March.
    4. Carol Newman & Finn Tarp, 2018. "Risk and investment: Evidence from rural Vietnam," WIDER Working Paper Series 122, World Institute for Development Economic Research (UNU-WIDER).
    5. M. A. Baqui Khalily & Mohammed Jamal Uddin & Tunazzina Sultana & Naim Uddin Hasan Awrangajeb Chy & Zapan Barua, 2023. "Coping with the economic effects of COVID-19: an evidence from the Bangladesh labour market," SN Business & Economics, Springer, vol. 3(7), pages 1-26, July.
    6. Masako Hasegawa, 2017. "Risk-Coping Measures against Health Shocks during the Process of Penetration of Health Insurance in Vietnam," Asian Economic Journal, East Asian Economic Association, vol. 31(2), pages 139-164, June.
    7. Peng Chen & Wei Zhai & Xiankui Yang, 2023. "Enhancing resilience and mobility services for vulnerable groups facing extreme weather: lessons learned from Snowstorm Uri in Harris County, Texas," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 118(2), pages 1573-1594, September.
    8. Carol Newman & Finn Tarp & Katleen Van Den Broeck, 2014. "Social Capital, Network Effects, and Savings in Rural Vietnam," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 60(1), pages 79-99, March.
    9. Anton Parlow, 2016. "State and Development: Child Mortality and the War on Terror: Afghanistan from 2007 to 2010," HiCN Working Papers 220, Households in Conflict Network.
    10. Arouri, Mohamed & Nguyen, Cuong & Youssef, Adel Ben, 2015. "Natural Disasters, Household Welfare, and Resilience: Evidence from Rural Vietnam," World Development, Elsevier, vol. 70(C), pages 59-77.
    11. Anh Duc Dang, 2012. "On the Sources of Risk Preferences in Rural Vietnam," ANU Working Papers in Economics and Econometrics 2012-593, Australian National University, College of Business and Economics, School of Economics.
    12. repec:unu:wpaper:wp2012-039 is not listed on IDEAS
    13. Tran, Van Q., 2015. "Household's coping strategies and recoveries from shocks in Vietnam," The Quarterly Review of Economics and Finance, Elsevier, vol. 56(C), pages 15-29.
    14. Sophie Mitra & Michael Palmer & Daniel Mont & Nora Groce, 2016. "Can Households Cope with Health Shocks in Vietnam?," Health Economics, John Wiley & Sons, Ltd., vol. 25(7), pages 888-907, July.
    15. MAMOUDOU Ba & Mazhar Mughal, 2022. "Weather Shocks, Coping Strategies and Household Well-being: Evidence from Rural Mauritania," Journal of Development Studies, Taylor & Francis Journals, vol. 58(3), pages 482-502, March.
    16. Anh Tuan Bui & Mardi Dungey & Cuong Viet Nguyen & Thu Phuong Pham, 2014. "The impact of natural disasters on household income, expenditure, poverty and inequality: evidence from Vietnam," Applied Economics, Taylor & Francis Journals, vol. 46(15), pages 1751-1766, May.
    17. Murata, Akira & Miyazaki, Suguru, 2014. "Ex-post Risk Management Among Rural Filipino Farm Households," Working Papers 67, JICA Research Institute.
    18. Victoria Kudaisi, Bosede & Akanni Olomola, Philip, 2021. "Effects Of Income Shock On Consumption Among Public Workers In Southwest Nigeria: Evidence From The 2016-2018 Economic Crisis," Ilorin Journal of Economic Policy, Department of Economics, University of Ilorin, vol. 8(2), pages 65-88, June.
    19. Vo, Thang T. & Van, Pham Hoang, 2019. "Can health insurance reduce household vulnerability? Evidence from Viet Nam," World Development, Elsevier, vol. 124(C), pages 1-1.
    20. Carol Newman & Finn Tarp, 2018. "Risk and investment: Evidence from rural Vietnam," WIDER Working Paper Series wp-2018-122, World Institute for Development Economic Research (UNU-WIDER).
    21. Nguyen, Loc Duc & Raabe, Katharina & Grote, Ulrike, 2015. "Rural–Urban Migration, Household Vulnerability, and Welfare in Vietnam," World Development, Elsevier, vol. 71(C), pages 79-93.

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    More about this item

    Keywords

    Insurance; precautionary savings; risk-coping; income shocks;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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