HEALTH SHOCKS AND HOUSEHOLD CONSUMPTION SMOOTHING IN NIGERIA

Abstract

Households experiencing health shocks (HS-death and disability) are at the risk of incurring substantial health expenditure as they seek treatment and experience loss of productive work hours, earnings, and declines in consumption. Coping with the economic consequences of HS and maintaining consumption in the absence of formal insurance, households respond with their own risk reduction, mitigation, and coping strategy (CS). However, not much is known either about the impact of HS on the variation of households‟ consumption (HC) or the capacity of existing risk sharing arrangements in smoothing consumption against HS in Nigeria. This study was therefore, designed to investigate the effect of HS on the HC, identify the strategies adopted by households to deal with HS and examine the effect of the most commonly used CS on consumption. The Full-Insurance theory provided the theoretical framework for the study. Data were obtained from two waves of the General Household Survey (GHS) panel, 2011 and 2013, produced by the National Bureau of Statistics. The GHS covered 5,000 households across the six geopolitical zones. Two measures of HS: death of a household member and disability that incapacitated a household member from carrying out normal activities of daily living were used. The HC was divided into food and non-food. A fixed effect model was estimated to examine the impact of HS on change in HC. Multinomial logit model was used to determine the CS used by households in the face of HS. The CSs were categorized into three groups: sales of assets; borrowings; and other-strategies. The effects of CS on consumption were computed by regressing the interaction term of predicted probability and measure of HS on household consumption. Estimates were validated at p  0.05 . The average household size was 7±4 persons, and the average age of household member was 27.0±20.0 years. Thirty-one percent of households were both male-headed and married. Twenty nine percent and Sixteen percent of sampled households reported disability and death respectively. Disability ( 4.18) t  and death ( 2.09) t  had a significant negative effect on food consumption. Disability decreased food consumption of households by 8.0%, while death reduced it by 23.0%. Disability ( 5.47) t  as well as death ( 3.48) t  of household member had significant negative impact on non-food consumption. Sales of assets and borrowing iii significantly affected the ability of households to maintain consumption with likelihood of 0.67 and 0.54, respectively. Sales of assets ( 6.10) t  and borrowing ( 2.9) t  had positive and significant impacts on consumption, while other-strategies ( 4.55) t  were negative and significant. Health shocks reduced household consumption in Nigeria. Sales of assets and borrowing were the most prominent coping strategies. Emphasis on measures geared towards providing financial protection against health shocks such as payment of disability benefits and assistance to households that report death should be intensified by the government.