Consumption smoothing and Vulnerability in Four Rural Villages of Ethiopia

Using year long intensive monitoring rural household survey, the study has shown that while covariant shocks lead to change in consumption patterns, idiosyncratic shocks appear to be fully insured using various copying strategies. However, households were less likely sell livestock to smooth income shock during survey periods. They seek for wage employments but are compelled to sell livestock in absence of such opportunities. Impact of changes in total household income on consumption with control for idiosyncratic shocks were also investigated and found that households are smoothing their consumption evenly across time. Further test of consumption smoothing indicated that there is a limit to insure against shocks through better-off households within communities. Disaggregating into asset poor and nonpoor, the study has also shown that asset poor households are more diversifying income sources than asset nonpoor. However, most of them have low returns; and hence they are more vulnerable than asset nonpoor households.