1. Health Shocks, Household Consumption, and Child Nutrition Aida Galiano Economic Strategies and Initiatives S.L. ADETRE, University of Zaragoza Marcos Vera-Hernández University College of London and Institute for Fiscal Studies, London Simposio de Análisis Económico 2008

2. 2 Motivation In developing countries, formal credit and insurance markets do not work well or are absent. Consequently, households rely partly on informal coping mechanisms to smooth consumption when they are hit by adverse shocks. Adverse shocks: deaths, epidemics, illness, natural catastrophes, crop loss etc.  They cause a negative effect on household income. There is an extensive literature testing how well insured households are in developing countries.

3. 3 Motivation The basic intuition is that if households are well insured consumption growth, or more generally income growth, should be uncorrelated with shocks. Health shocks: Literature has not considered that several consumption items might be part of the health production function. If households were perfectly insured, household consumption could increase following a health shock. - Extra consumption is required to speed up the process of health recovery. - Food, medical expenses, clean fuel, blankets. - Particularly, in very poor households.

4. 4 Motivation Health shocks triggers an increase in better food for the sick person, clean fuel because the sick person stays at home, transportation, etc. However, non-medical consumption remaining constant following a health shock might be consistent with the household not being fully insured. If non-medical consumption has not changed… … its means that the household is buying less of some other items or someone in the household is getting a smaller share of total non-medical consumption.

5. 5 Our contribution 1.We document that several items of household consumption can increase after a health shock suffered by an adult. 2.However, the household is not perfectly insured as evidenced by a decrease in girl’s weight. 3.Therefore, we contribute to the literature: - Giving some warning on the use of household consumption to test how well insured households are when illness is a concern. - Pointing out the importance of data on individual nutritional status.

6. 6 Outline 1. Data 2. Methodology 3. Results 4. Conclusions

7. 7 Data The evaluation of Familias en Acción. Familias en Acción: implemented by the Colombian government after the Mexican PROGRESA. Provides monetary transfers to mothers in beneficiary families conditional on having completed some requirements. Longitudinal Data: three waves of data on the same households - Wave 1 Summer of 2002, 11.502 households - Wave 2 July to November 2003 - Wave 3 December 2005 to March 2006 Focus on a very poor population (the one eligible for the program).

8. 8 Data The sample : Municipalities: 122 municipalities - 57 treatment municipalities and 65 comparison municipalities. - The comparison municipalities were chosen as the most similar to the treatment ones among those did not obtain for the program. Households: - Those with children below 17 years old - and classified as SISBEN 1 by December 1999 (these households are the poorest ones) Our sample : Households: with children below 7 years olds (wave 1), 8 years olds (wave 2), and below 10 years olds (wave 3)

9. 9 Data HEALTH SHOCKS: Q.1 “Has the individual had any health problem during the last fifteen days that does not let her perform daily routine?” - Last fifteen days: our health shocks are a very recent event. Q.2 “Has the individual had any paid job anytime during her life?” - They are likely to report income to the household. Shock_ill = 1 if the answer to both questions is YES Moreover, we define 2 x 3 groups of shocks: -Male between 12-17, 18-65, and older than 65 years old. -Female for the same three groups of ages.

10. 10 Data HOUSEHOLD CONSUMPTION VARIABLES: Household consumption in the survey includes consumption of: 98 different food items purchased, gift, payment in kind, or own farm. 51 non-food items such as fuel, transportation, hygienic and cleaning products, clothes and shoes, durables, and medical expenses. For our analysis we construct: - Five categories (4+1) of household consumption in $, 2003 prices. - Considering consumption per household by month. 1. Total consumption 2. Food consumption 3. Health expenditures 4. Total consumption net of food and health expenditures 5. Not related to health (children pocket money, newspapers, books, music, toys, children clothes, hairdressers, leisure)

11. 11 Data TRANSFER PAYMENTS: - Monetary, in kind, and labour assistance transfers. - Defined in net terms (to the household minus from the household). DEBTS: - Whether or not the household owe debts.

12. 12 Data CHILD NUTRITION VARIABLES: Anthropometric measures (height and weight) are collected for children - below 7 years olds (wave 1), - 8 years olds (wave 2), and - below 10 years olds (wave 3) Z-score (standard deviation) measures: Weight-for-Height: measure of short-run changes, measure of current nutritional status. Height-for-Age: long-term (included as a falsification exercise, as we do not expect height increasing for such a recent illness event)

13. 13 Data Z-score (standard deviation) measures:

14. 14 Analysis: Household consumption How recent illness shocks affect Household consumption? Basic Specification: controls for -Time dummies (years and months) -Household composition by age and gender -Rural area -Familias en Acción (eligibility changes with time and age). Household fixed effect (controls that poorer household might be more prone to receive shocks, and they will have worse levels of the outcome variable independently of the shock occurring or not) Standard errors clustered at the municipality level (arbitrary correlation in the error term within each municipality)

15. 15 Results: Consumption US $

16. 16 Results Different specifications which additionally control for -Education level of the current head -Education of his wife -One parental household to check the robustness of our results.  Support the main conclusion: - The household consumption increases when an illness shock hits the household. - This increase is strongly significant at 1% when a recent illness event hit working men and women between 18-65 years old

17. 17 The increase in household consumption is very specific of health shocks. Results: Consumption US $

18. 18 Analysis: Sources of income to finance increase household consumption Household can cope with the shock by increasing the labour supply of other household members, receiving money from other households, selling some possessions, etc. (informal insurance). We do not find evidence that healthy individuals increase labour supply following an illness shock. But we find that transfers and debts are responsive to the illness shocks.

19. 19 Results: Transfers, Debts

20. 20 Analysis: Children’s nutrition status How recent illness shocks affects Children’s nutrition status? Basic Specification: controls for -Time dummies (years and months) -Household composition by age and gender -Order of the child in the household -One-parental household -Familias en Acción, and eligibility to be en FeA -Education level and age of the child’s household head and mother Household fixed effect Standard errors clustered at the municipality level

21. 21 Results: Height and Weight

22. 22 Results Additional specifications: additionally control for -Height of the mother -Rural area  Support the main conclusion: Girl’s (but not boys) weight decreases.

23. 23 Conclusions  Following a recent illness shock of a male household member aged 18-65, we find that girls’ weight decreases, but not boys’.  We also find that food, medical, and other consumption increase following the health shock - Not contradiction with Gertler and Gruber (2002) that analyzed not necessarily recent but very severe health shocks. - Debts and transfers seem to be the funding source of the consumption increase.  The increase in household consumption does not occur for non-health shocks.  It makes sense that household increase consumption to speed up the process of health recovery.

24. 24 Conclusions  Household make difficult intrahousehold choices when an illness shock hits a 18-65 years old household member active in the labour market. - Increase resources devoted to the sick member - By decreasing the consumption of other household’s groups, and consequently their nutritional status. - Even if they can use transfers and debt. Household consumption analysis is not enough to analyse how well insurance the household is, and data on nutritional status might be very valuable.