Skip to main content

Advertisement

Log in

You are not alone: social capital and risk exposure in rural Ethiopia

  • Original Paper
  • Published:
Food Security Aims and scope Submit manuscript

Abstract

This paper examines the impact of shocks on food security and the insurance role of social capital and informal social networks. In particular, by combining household panel data, weather data, self-reported shocks and detailed social capital information, the paper investigates the insurance role of social capital against covariate and idiosyncratic shocks. Our results suggest that both covariate and idiosyncratic shocks increase the prevalence of food insecurity. However, households with a higher stock of social capital were able to smooth consumption. We also found that food consumption is not insured through social capital when a shock affects the whole risk-sharing network. Moreover, we show that formal policy interventions such as access to consumption credit and safety nets are the only effective ways of insuring food consumption when a shock affects the entire risk-sharing network.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1

Similar content being viewed by others

Notes

  1. Iddirs are informal institutions established for providing mutual aid during death of members (Dercon et al. 2006).

  2. A shock is considered as idiosyncratic if the effect is confined to the household and covariate if it affects at least some other residents in the village. In the survey the following questions were used to determine a given shock as covariate and idiosyncratic: “How widespread was the shock? i) only affected my household, ii) affected some households in this village, iii) affected all households in this village, iv) affected this village and other nearby villages

  3. These data were made available by the Economics Department, Addis Ababa University, and the Centre for the Study of African Economies, University of Oxford and the International Food Policy Research Institute. Funding for data collection was provided by the Economic and Social Research Council (ESRC), the Swedish International Development Agency (SIDA) and the United States Agency for International Development (USAID); the preparation of the public release version of these data was supported, in part, by the World Bank, AAU, CSAE, IFPRI, ESRC, SIDA and USAID

  4. Our measure of non-food consumption excludes expenditure on health and medical care. Expenditure on health and medical care was deducted from non-food consumption. Previous studies on health shocks by Gertler, Levine and Moretti 2006; Gertler and Gruber 2002; De Weerdt and Dercon 2006; Islam and Maitra 2012; Asfaw and von Braun 2004 also used similar measurement of non-food consumption.

  5. We assumed health shocks to be exogenous for the following reasons: Our measurement of health shocks can be regarded as being transitory and unpredictable. Our identification strategy relied heavily on this assumption. In addition, since we used fixed effects, any time invariant unobserved household characteristic (e.g., early childhood nutrition) that may affect consumption and health outcomes were eliminated. However, time-varying unobservable factors may affect both health and consumption outcomes. For example, wealthy farmers may have better health outcomes (through the purchase of health inputs, including better nutrition and healthcare) and consumption. However, in our measurement of consumption, we excluded health expenditures. Though we tried to address the issue of identification using fixed effects, we acknowledge that identification might still be a problem with health shocks. While the consistency of the results reported in this paper supports the absence of consumption smoothing against health shocks, the results may need to be interpreted with caution.

  6. However, the problem of reverse causality between (food) consumption and health shocks may extend beyond the correlation between rainfall shocks and health shocks. This would be an important area of future research and is beyond the scope of this paper.

  7. Measuring the interaction effect between market shocks and social capital is beyond the scope of this paper. Theoretically, market shocks may not adversely affect food security and hence the role that social capital may play cannot be specified a priori.

  8. Using the 2004 rounds of ERHS data, Dercon et al. (2005) reported that experiencing a health shock reduces consumption growth by 9 %.

  9. Note that, we did not include an interaction term between market shocks and social capital variables as the social capital proxies we considered here are not designed to serve against market shock

  10. First stage regression results are presented in Table 9, Appendix I

References

  • Asfaw, A., & von Braun, J. (2004). Is consumption insured against illness? Evidence on vulnerability of households to health shocks in rural Ethiopia. Economic Development and Cultural Change, 53(1), 115–129.

    Article  Google Scholar 

  • Baland, J. M., Guirkinger, C., & Mali, C. (2011). Pretending to be poor: borrowing to escape forced solidarity in Cameroon. Economic Development and Cultural Change, 60(1), 1–16.

    Article  Google Scholar 

  • Berhane, G., Clarke, D., Dercon, S., Hill, R. V., & Taffesse, A. S. (2013). Insuring against the Weather (No. 20).

  • Carter, M., & Maluccio, J. (2003). Social capital and coping with economic shocks. An analysis of stunting of South African children. World Development, 31(7), 1147–1163.

    Article  Google Scholar 

  • Carter, M., Peter, L., Tewodaj, M., & Workneh, N. (2007). Poverty traps and natural disasters in Ethiopia and Honduras. World Development, 35(5), 835–856.

    Article  Google Scholar 

  • De Weerdt, J., & Dercon, S. (2006). Risk sharing networks and insurance against illness. Journal of Development Economics, 81(2), 337–356.

  • Debebe, Z., Mebratie, A., Sparrow, R., Abebaw, D., Dekker, M., Alemu, G., & Bedi, A. (2013). Coping with shocks in rural Ethiopia. Leiden: African Studies Centre.

    Google Scholar 

  • Demeke, A., Keil, A., & Zeller, M. (2011). Using panel data to estimate the effect of rainfall shocks on smallholders food security and vulnerability in rural Ethiopia. Climatic Change, 108, 185–206.

    Article  Google Scholar 

  • Dercon, S. (2004). Growth and shocks: evidence from rural Ethiopia. Journal of Development Economics, 74, 309–329.

    Article  Google Scholar 

  • Dercon, S., & Christiaensen, L. (2011). Consumption risk, technology adoption and poverty traps: evidence from Ethiopia. Journal of Development Economics, 96(2), 159–173.

    Article  Google Scholar 

  • Dercon, S., & Hoddinott, J. (2004). The Ethiopian rural household surveys: introduction. Unpublished manuscript, International Food Policy Research Institute, Washington, DC.

  • Dercon, S., & Krishnan, P. (2000). In sickness and in health: risk sharing within households in rural Ethiopia. Journal of Political Economy, 108(4), 688–727.

  • Dercon, S., John, H., & Tassew, W. (2005). Shocks and consumption in 15 Ethiopian villages, 1999–2004. Journal of African Economies, 14, 559–585.

    Article  Google Scholar 

  • Dercon, S., De Weerdt, J., Bold, T., & Pankhurst, A. (2006). Group-based funeral insurance in Ethiopia and Tanzania. World Development, 34(4), 685–703.

    Article  Google Scholar 

  • Di Falco, S., & Bulte, E. (2011). The dark side of social capital: network, consumption and investment. Journal of Development Studies, 47(8), 1128–1151.

    Article  Google Scholar 

  • Di Falco, S., & Bulte, E. (2013). The impact of network networks on the adoption of risk-mitigating strategies in Ethiopia. World Development, 4, 100–110.

    Article  Google Scholar 

  • Ethiopia Rural Household Survey Dataset (ERHS) (2009). Washington, D.C.: International Food Policy Research Institute (IFPRI) (datasets). http://www.ifpri.org/dataset/ethiopian-rural-household-surveys-erhs.

  • Fafchamps, M., & Lund, S. (2003). Risk-sharing networks in rural Philippines. Journal of Development Economics, 71(2), 261–287.

  • Fafchamps, M., Christopher, U., & Katherine, C. (1998). Drought and saving in West Africa: are livestock a buffer stock? Journal of Development Economics, 55, 273–305.

    Article  Google Scholar 

  • Gertler, P., & Gruber, J. (2002). Insuring consumption against Illness. American Economic Review, 92(1), 51–70.

  • Gertler, P., Levine, D., & Moretti, E. (2006). Is social capital the capital of the poor? The role of family and community in helping insure living standards against health shocks. CESifo Economic Studies, 52(3), 455–499.

    Article  Google Scholar 

  • Grimard, F. (1997). Household consumption smoothing through ethnic ties: evidence from Côte d’Ivoire. Journal of Development Economics, 53(2), 391–422.

    Article  Google Scholar 

  • Grootaert, C., & Narayan, D. (2004). Local institutions, poverty and household welfare in Bolivia. World Development, 32(7), 1179–1198.

    Article  Google Scholar 

  • Hoddinott, J., Dercon, S., & Krishnan, P. (2009). Networks and informal mutual support in 15 Ethiopian villages. In J. F. Kirsten, A. R. Dorward, C. Poulton, & N. Vink (Eds.), Institutional economics perspectives on African agricultural development (pp. 273–286). Washington: International Food Policy Research Institute. doi:10.2499/9780896297814BK.

    Google Scholar 

  • Islam, A., & Maitra, P. (2012). Health shocks and consumption smoothing in rural households: does microcredit have a role to play? Journal of Development Economics, 97, 232–243.

    Article  Google Scholar 

  • Kazianga, H., & Christopher, U. (2006). Consumption smoothing? Livestock, insurance and drought in rural Burkina Faso. Journal of Development Economics, 79(2), 413–446.

    Article  Google Scholar 

  • Nizalova, O., & Murtazashvili, I. (2014). Exogenous treatment and endogenous factors: vanishing of omitted variable bias on the interaction term. Journal of Econometric Methods. doi:10.1515/jem-2013-0012.

    Google Scholar 

  • Porter, C. (2012). Shocks, consumption and income diversification in rural Ethiopia. Journal of Development Studies, 48(9), 1209–1222.

    Article  Google Scholar 

  • Rosenzweig, M. R. (1988). Risk, implicit contracts and the family in rural areas of low-income countries. The Economic Journal, 393, 1148–1170.

    Article  Google Scholar 

  • Tefera, N., Demeke, M., & Rashid, S. (2012). Welfare impacts of rising food price in rural Ethiopia. A quadratic almost ideal demand approach. available at: http://ideas.repec.org/p/ags/iaae12/124861.html.

  • Tegebu, F. (2008). Poverty, asset accumulation, household livelihood and interactions with local institutions in northern Ethiopia. Unpublished PhD thesis.

  • Townsend, R. (1994). Risk and insurance in village India. Econometrica, 62(3), 539–592.

    Article  Google Scholar 

  • Wagstaff, A. (2007). The economic consequences of health shocks: evidence from Vietnam. Journal of Health Economics, 26(1), 82–100.

    Article  PubMed  Google Scholar 

  • Wetterberg, A. (2007). Crisis, connections, and class. How social ties affect household welfare. World Development, 35(4), 585–606.

    Article  Google Scholar 

  • Witoelar, F. (2013). Risk sharing within the extended family: evidence from the Indonesia family life survey. Economic Development and Cultural Change, 62(1), 65–94.

    Article  Google Scholar 

  • Wossen, T., & Berger, T. (2015). Climate variability, food security and poverty: agent- based assessment of policy options for farm households in Northern Ghana. Environmental Science & Policy, 47, 95–107.

    Article  Google Scholar 

  • Wossen, T., Berger, T., Teferi, M., & Bamlak, A. (2013). Social network effects on the adoption of sustainable natural resource management practices in Ethiopia. International Journal of Sustainable Development & World Ecology, 20(6), 477–483.

    Article  Google Scholar 

  • Wossen, T., Berger, T., & Di Falco, S. (2015). Social capital, risk preference and adoption of improved farm land management practices in Ethiopia. Agricultural Economics, 46, 1–17.

    Article  Google Scholar 

Download references

Acknowledgments

The research project has been financially supported by the Dr. Hermann Eiselen Ph.D. Grant from the Foundation fiat panis and the publication is an output of the scholarship from the Food Security Center from the University of Hohenheim, which is part of the DAAD (German Academic Exchange Service) program “exceed” and is supported by DAAD and the German Federal Ministry for Economic Cooperation and Development (BMZ).

Author information

Authors and Affiliations

Authors

Corresponding author

Correspondence to Tesfamicheal Wossen.

Appendix I

Appendix I

First stage regression results.

Table 9 First stage regression results

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Wossen, T., Di Falco, S., Berger, T. et al. You are not alone: social capital and risk exposure in rural Ethiopia. Food Sec. 8, 799–813 (2016). https://doi.org/10.1007/s12571-016-0587-5

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s12571-016-0587-5

Keywords

JEL classification

Navigation