Coping with shocks in rural Ethiopia

Abstract

Using survey data and event history interviews undertaken in Ethiopia, we investigate which shocks trigger which coping responses and why. Relatively covariate natural and economic shocks trigger reductions in savings and in food consumption, while relatively idiosyncratic health shocks prompt reductions in savings and a reliance on borrowing. Surprisingly, across all shocks, households do not rely on gifts from family and friends, highlighting the need for formal protection systems. We argue that the insensitivity of food consumption to health shocks does not imply insurability but indicates that it is not a viable response to such a shock.