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Adverse shocks can take many forms: Natural disasters, climate change, illness, unemployment, technological change, price fluctuations, conflict, vandalism, fire, robbery, pest attacks, accidents, etc. The list is endless, and it is important for households to build up resilience against all of these, so that they will be able to overcome the adverse shocks that will inevitably happen from time to time (Andersen & Cardona, 2013).
An important strategy for coping with risk is livelihood diversification (Ellis, 2000; Ellis and Freeman, 2005). The greater the diversity of income, the greater the resilience of livelihoods to disruption from any particular source (Adger 1999).
In a recent paper Andersen & Cardona (2013) proposes a simple measure of livelihood diversification, interpreting it as the opposite of livelihood concentration. Thus, it is simply measured as one minus the widely used Herfindahl–Hirschman Index of Concentration.
Using this simple measure, they have estimated the level of livelihood diversification for all Bolivian households in the 2011 national household survey conducted by the National Statistical Institute. They then combined this information with information about the level of income, in order to identify highly resilient households (high income and high diversification) and highly vulnerable households (low income and low diversification). See figure 1.
Figure 1: The six vulnerability types used Andersen & Cardona (2013)
They then performed regression analysis to determine the factors and strategies that affect the probability of falling into any of these categories.
The main conclusions of the study are the following: By far the most important strategy for households to develop resilience is to have a working and income earning spouse in the household. So far, only about one third of Bolivian households use this strategy. While the decision to work at home or participate in the labor market is mostly a private decision, there is plenty the government can do to help facilitate the option for spouses to be economically active. For example: Providing free public pre-school facilities of good quality and making labor regulations and work hours much more flexible.
The second most important factor is the age of the head of household. Young families are much more likely to be vulnerable than more mature households. This is a natural life-cycle effect, since young families have not had time to build up assets that can provide supplementary income, and at the same time they often have young children to take care of. However, there are still a range of policy interventions that could help reduce the prevalence of extremely young and vulnerable households. According to the 2011 household survey in Bolivia, there are currently more than 30,000 families with kids, where the head of household is no more than 20 years old. This kind of situation can be prevented by better family planning education and support.
Some of the unexpected results found in the paper are that neither female headed nor indigenous households seem to be more likely to be highly vulnerable, but that urban households are. Governments, as well as development institutions, often assume that female headed, indigenous and rural households are the most vulnerable to external shocks, but this research suggests that this may not be true. Instead, there is a large group of young urban households with high dependency burdens which depend almost exclusively on the fragile and informal earnings of one young household head. These urban households are unable to benefit from the gifts of nature like their rural counterparts, so they need money every month to buy food and pay rent. If the main income of the family is lost due to unemployment, health problems or an accident, the urban household cannot just sell a cow or hunt a wild pig to make up the shortfall. They usually cannot get a loan either, and there is little government support, so they are indeed very vulnerable to adverse shocks, and this is a neglected group that any policy aiming at reducing vulnerability needs to consider.
The paper was highlighted in the Vox.LACEA Latest Research section and is freely available from the INESAD website here.
Dr. Lykke E. Andersen is the Director of the Center for Economic and Environmental Modeling and Analysis (CEEMA) at the Institute of Advanced Development Studies (INESAD), La Paz, Bolivia.
This blog article was first published in the INESAD Development Roast Webpage
Adger, W.N. (1999) “Social Vulnerability to Climate Change and Extremes in Coastal Vietnam.” World Development. 27(2): 249-269.
Andersen, L. E. & M. Cardona (2013) “Building Resilience against Adverse Shocks:
What are the determinants of vulnerability and resilience?” Development Research Working Paper No. 02/2013, Institute for Advanced Development Studies (INESAD), La Paz, Bolivia, June.
Ellis, F. (2000) Rural Livelihoods and Diversity in Developing Countries. New York: Oxford University Press.
Ellis, F. & H.A. Freeman. (2005) Rural Livelihoods and Poverty Reduction Policies. Routledge. London and New York.