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
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.
Consumption insurance and vulnerability to Poverty: A Synthesis of the Evidence from Bangladesh, Ethiopia, Mali, Mexico and Russia.