Income shocks and intrahousehold resource allocation: evidence from rural Ethiopia

How do income shocks affect intra-household expenditure patterns in agricultural economies? Using rainfall data and household panel data, with responses from both spouses, from rural Ethiopia, we show that a negative household level income shock significantly reduces female expenditures relative to male expenditures (31.4% greater reduction). We specifically explore the channel of female and male labour supply as an explanation behind the observed differentiated impacts on spousal consumption. We find evidence that engaging in off-farm employment provides women with an independent income and allows them to smooth their expenditures during farm income shock. We also find evidence that the wife’s involvement in managing and controlling the household farm, measured as her time spent on the farm relative to the husband, negates the shock-induced gender differential in expenditures. Together, these results highlight gender-specific impacts of household income shocks on consumption and the role female economic opportunities play in negating intra-household impacts of such household shocks.