Elsevier

World Development

Volume 72, August 2015, Pages 255-266
World Development

Sickness and Death: Economic Consequences and Coping Strategies of the Urban Poor in Bangladesh

https://doi.org/10.1016/j.worlddev.2015.03.008Get rights and content

Highlights

  • We explore the economic consequences of mortality and morbidity in urban Bangladesh.

  • Income loss and catastrophic health spending are key channels of economic risk.

  • Irrespective of their wealth, households are able to smooth consumption.

  • The most common strategies to finance illness are borrowing and selling assets.

  • We find negative longer-run effects of borrowing and asset depletion on consumption.

Summary

We investigate the economic consequences of sickness and death and the manner in which poor urban households in Bangladesh respond to such events. Based on panel data we assess the effects of morbidity and mortality episodes on household income, medical spending, labor supply, and consumption. We find that despite maintaining household labor supply, serious illness exerts a negative effect on income for the poor. However, the estimates do not reject consumption smoothing. The most prominent responses to finance current needs are increasing household debt through borrowing and depleting productive assets, both of which have detrimental effects on future consumption.

Introduction

In recent years, the economic consequences of episodes of morbidity and mortality in developing countries have received increasing academic and policy attention (for instance, Asfaw and von Braun, 2004, Genoni, 2012, Gertler and Gruber, 2002, Gertler et al., 2009, McIntyre et al., 2006, Sparrow et al., 2014, Wagstaff, 2007). In the absence of health and life insurance, serious illnesses or the death of a family member is likely to push vulnerable households who rely heavily on their labor, deeper into penury. Households experiencing unexpected bouts of illness or the death of a family member are likely to incur income losses to the extent that they rely on wage income and at the same time be forced to spend a larger fraction of their household budget on health care. To cope with such events and maintain consumption, households may liquidate assets, resort to intra-household labor substitution, borrow, or withdraw children from school with potentially deleterious consequences for future household welfare.1

In one of the earliest studies to investigate the economic effects of illnesses, Townsend (1994), based on ICRISAT panel data from rural India, concluded that after controlling for village-level consumption, an idiosyncratic shock such as illness measured by the percentage of the year that an adult male was sick, had no effect on household consumption. Using the same data base Kochar (1995) found that the illness of a male household member especially during the peak period of the agricultural cycle was associated with a decline in wage income and increased informal borrowing. Taken together, these two studies suggest that while households may be able to retain consumption at least in the short run, this may come at the risk of future impoverishment. It also highlights the importance of jointly analyzing the effects of illnesses on income, consumption, and coping strategies.

In general, the evidence on household ability to insure consumption against ill-health is mixed. In a nuanced analysis that supports a distinction between minor and more severe illnesses, Gertler and Gruber (2002) use a large panel data set from rural Indonesia to show that while households are able to insure consumption against 70% of high-frequency minor illnesses, they are able to protect themselves against only 30% of low-frequency illnesses that limit the physical functioning of family members. Also based on data from Indonesia, Gertler et al. (2009) and Nguyen and Mangyo (2010) conclude that households are unable to protect their consumption against large health shocks and chronic illnesses. In contrast, Genoni (2012) finds no evidence of imperfect consumption smoothing in Indonesia while Sparrow et al. (2014) report that it is only informal sector workers and the poor who are unable to protect their consumption. Studies for other countries that show that households are only partly able to smooth consumption, especially in the event of large infrequent shocks and chronic illness, include Dercon and Krishnan (2000) and Asfaw and von Braun (2004) for Ethiopia, and Wagstaff (2007) for Vietnam, whereas Mohanan (2013) finds little evidence of imperfect smoothing in India and De Weerdt and Dercon (2006) find evidence of consumption smoothing through networks in Tanzania. Pertinent to the current context, based on panel data from rural Bangladesh, Skoufias and Quisumbing (2005) find no effect of male or female illnesses on household consumption. While, in a more recent paper, also based on panel data from rural Bangladesh, Islam and Maitra (2012) report that consumption smoothing is imperfect in the case of a large shock.

While there are several reasons for the differences in the degree of consumption smoothing reported across studies, of primary concern in the relatively recent papers in this genre (e.g., Genoni, 2012, Mohanan, 2013, Sparrow et al., 2014, Wagstaff, 2007) are the transmission channels through which ill-health and mortality affect consumption and identification of the strategies adopted by households to maintain consumption. Indeed, the effects of mortality and morbidity on current consumption and the ability of households to (partially) maintain consumption may be a misleading indicator of the economic impacts of such events, especially if consumption is maintained through incurring high-cost debt (e.g., Ambrosius and Cuecuecha, 2013, Mohanan, 2013), selling assets (e.g., Islam & Maitra, 2012) or foregoing human capital investments in children (Mottaleb, Mohanty, & Mishra, 2015). Echoing this view, Chetty and Looney (2006) argue that focusing on the effect of a shock on consumption is not very informative without determining why and how households smooth consumption.

This paper uses data from urban Bangladesh to add to the relatively thin literature which explores the transmission channels, coping responses, and economic consequences of mortality and morbidity episodes. In the Bangladeshi context, a number of studies (Begum and Sen, 2004, Carrin et al., 1999, Kabir et al., 2000) have examined the effects of illnesses on the livelihoods of rickshaw pullers and more generally the urban poor. These studies suggest that ill health is the single most important factor influencing the (downward) economic mobility of households. However, while these papers yield useful insights they do not establish causal effects of health shocks on economic outcomes.

Our empirical analysis relies on longitudinal data and examines the effect of serious illnesses and the recent death of a household member on medical expenditure, income, labor supply, and consumption. An assessment of the effect of health shocks on these various outcomes, as opposed to focusing only on the overall effect on consumption, is likely to provide insights on the channels through which health shocks affect households. We also study the strategies adopted by households to deal with shocks and subsequently investigate the effect of the most commonly used coping strategies on future consumption.

An additional novelty is the focus on urban households as compared to the bulk of the literature which deals with such issues in a rural context.2 It is likely that due to factors such as differences in occupation and access to informal credit, rural and urban households react differently to different types of shocks. A review of studies which have examined the effects of various shocks, albeit not health shocks, suggests that rural households are more vulnerable to covariate shocks while urban households display greater vulnerability to idiosyncratic shocks (see Günther & Harttgen, 2009).

With regard to health shocks in the Bangladesh context, Begum and Sen (2004) and BBS-UNICEF (2010) argue that given their occupations which may be physically more demanding, on average smaller household size, less flexible working arrangements, and less extensive social networks, urban slum households may be more vulnerable to health shocks as compared to rural households and at the same time may be less able to access informal sources of credit. Furthermore, as shown in BBS-UNICEF (2010), in Bangladesh, due to the concentration of various government and NGO human development programmes in rural areas, the urban poor, especially those residing in urban slums, have lower access to basic services which may also make them more vulnerable to health shocks as compared to their rural counterparts. While we cannot offer a comparative analysis of the effects of health shocks on rural and urban households, which is a drawback, we contribute by providing, to the best of our knowledge, the only study that quantifies the economic risk from morbidity and mortality specifically for poor urban households.

The paper is organized as follows: Section 2 outlines the setting and the data while Section 3 lays out the empirical framework. Section 4 discusses the results while Section 5 summarizes and concludes the paper.

Section snippets

The setting

According to the latest available figures, Bangladesh is one of the most densely populated countries in the world (1,111 individuals per square kilometer) with 27% of its 160 million population living in urban areas. Driven by the rapid inflow of rural migrants due to poverty and environmental reasons, urban population growth (3.5% per annum during 2005–10) far outstrips the corresponding figure for rural areas (1%), contributing to the growth of slums. An estimated 60% of the urban population

Methods

Our empirical analysis assesses (i) the channels of economic risk of morbidity and mortality for households, (ii) the ability to smooth consumption when faced with these risks, (iii) the coping strategies adopted to deal with morbidity and mortality, and (iv) the dynamic effects of using borrowing or depleting assets as a coping response.

Income and consumption

The effects of morbidity and mortality of a household member on measures of economic risk—medical spending and income loss—are shown in Table 5. Serious illness increases per capita OOP health spending by 96% and OOP as a share of the household budget by 66%. This increase in average medical spending also includes some potentially impoverishing health-spending events, as the incidence of catastrophic health spending increases by 15 percentage points. As may be expected, the death of a household

Conclusion

This paper investigates the economic consequences of morbidity and mortality for the poor in urban slums of Bangladesh, the manner in which these households respond to such events, and how their most common coping strategies—borrowing and drawing on assets—affects future consumption.

We find that the economic risk stems from both medical spending and income loss. A serious illness of a household member sharply increases OOP health spending and the incidence of catastrophic spending. Moreover, a

Acknowledgments

We thank participants at the World Congress on Health Economics 2013 in Sydney and Zelalem Debebe for useful comments. Nirob Khandaker, Nazmus Sakib, and Newaz Mostafa provided invaluable research assistance for the fieldwork. We are grateful to the International Food Policy Research Institute (IFPRI) for providing access to the data used in this paper.

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