This paper synthesizes the results of five IFPRI studies using household panel data from Bangladesh, Ethiopia, Mali, Mexico and Russia, which examine the extent to which households are able through formal and/or informal arrangements to insure their consumption from specific economic shocks and fluctuations in their real income. The extent of consumption insurance is defined by the degree to which the growth rate of household consumption covaries with the growth rate of household income. Instrumental variables methods are used to correct for measurement error in income, imputation error in food consumption and endogeneity of income. For Bangladesh, Ethiopia, and Russia, we construct a household-specific measure of consumption insurance and examine the partial correlation of household consumption insurance with household characteristics as well as the incidence of poverty. All the case studies show that food consumption is better insured than nonfood consumption from idiosyncratic shocks. Adjustments in nonfood consumption appear to act as a mechanism for partially insuring ex-post the consumption of food from the effects of income changes. Food consumption is also more likely to be covered by informal insurance arrangements at the community level than nonfood consumption. All the case studies also show that households use a portfolio of risk-coping strategies, but that different types of households may have differential ability to use these strategies. In particular, poorer households may be less able to use mechanisms which rely on initial wealth as collateral. In this regard, public transfer programs may have a more redistributive effect.
Consumption insurance and vulnerability to poverty: a synthesis of the evidence from Bangladesh, Ethiopia, Mali, Mexico and Russia, presented at Staying Poor: Chronic Poverty and Development Policy, Institute for Development Policy and Management, University of Manchester, 7-9 April 2003. Chronic Poverty Research Centre (CPRC), Manchester, UK, i + 52 pp.