Health shocks and consumption smoothing among rural households in Nigeria

Aim/purpose – The prevalence of poverty among Nigerian households and limited social safety nets predispose the country to health shock. Health shocks are associated with adverse economic consequences: they raise medical expenditure and reduce household consumption. The household responds with informal coping mechanism to smoothen consumption. The coping strategies are limited to household asset endowment and access to credit facility. This study examines the effect of health shock on changes in household consumption and investigates the coping strategies employed in the face of health shock. Design/methodology/approach – The study is anchored on the full-insurance theory. Data were obtained from two waves of the General Household Survey (GHS) panel, 2011 and 2013. The GHS covered 5,000 households across the six geopolitical zones. Three measures of HS, death of a household member, disability and severe illness, were used. The household consumption was divided into food and non-food. A fixed effect model was estimated to examine the impact of health shock on change in consumption. Multinomial Logit Model was used to determine the coping strategies used by households. Findings – Disability and death had a negative effect on food consumption. Death decreased non-food consumption of households, while disability was not statistically significant. Severe illness had significant positive impact on consumption. Borrowing significantly affected the ability of households to maintain consumption. Death reduced rural household consumption in Nigeria. Borrowing was the most prominent coping strategy. Research implications/limitations – Provision of financial protection against health shocks such as payment of disability benefits and assistance to households that report death should be encouraged by the government. The sample was limited to those that reported illness in the four weeks preceding the GHS, thereby excluding those whose illness preceded 28 days before the survey. Originality/value/contribution – Rural-urban dichotomy among households in Nigeria was acknowledged in examining the relationship between health shocks and variation in consumption.