Idiosyncratic Risks in Rural Incomes: A Study in Ghana

By Andrew Adjei-Holmes (ISSER, UoG) Ernest Aryeetey (ISSER, UoG) Christopher Barrett (Cornell University) Robert Darko Osei (ISSER, UoG) Thomas Walker (Cornell University) Presented at ISSER, 15th July, 2010

An introduction Main Research Questions Some Preliminary Results Some concluding remarks

Idiosyncratic risks (shocks) tends to dominate covariate risks in rural incomes in Africa and Asia They can affect household incomes directly e.g. loss of job Such shocks affect rural incomes through asset accumulation and productivity funeral rites In Ghana, such shocks are widespread and are important determinants of current incomes of rural households Improving the management of such risks will improve the rate of asset accumulation by households and therefore improve household incomes

The ability of households to cope with such shocks depends on among other factors, how socially connected households are Evidence suggests that shocks have persistent effects on asset dynamics of households that are least connected There are different mechanisms that help households deal with such shocks Examples in Ghana include hometown associations (and others) and other informal insurance mechanisms such as funeral contributions.

The aim of the project is to study the nature of idiosyncratic shocks that affects households, The effects of these shocks on households The nature and type of mechanisms that help mitigate the effects of these shocks

Darmang -10 Pokrom -10 Darmang Pokrom -40 -30 -20 0 10 20 30 40 -50 -40 -30 -20 0 10 20 30 40 50 0-4 0-4 5-9 5-9 10-14 10-14 15-19 15-19 20-24 20-24 25-29 25-29 30-34 30-34 35-39 35-39 40-44 40-44 Female Male Female Male 45-49 45-49 50-54 50-54 55-59 55-59 60-64 60-64 65+ 65+ 50 40 30 20 10 0 -10 -20 -30 -40 -50 40 30 20 10 0 -10 -20 -30 -40 Oboadaka -10 Konkonuru -10 Oboadaka Konkonuru -40 -30 -20 0 10 20 30 40 -40 -30 -20 0 10 20 30 40 0-4 0-4 5-9 5-9 10-14 10-14 15-19 15-19 20-24 20-24 25-29 25-29 30-34 30-34 35-39 35-39 40-44 40-44 Male Female Male Female 45-49 45-49 50-54 50-54 55-59 55-59 60-64 60-64 65+ 65+ 40 30 20 10 0 -10 -20 -30 -40 40 30 20 10 0 -10 -20 -30 -40

Highest school level attended (per cent of respondents) Eastern Region National Darmang Pokrom Oboadaka Konkonuru None 8.8 11.6 22.0 12.8 14.5 16.8 Primary 21.6 28.3 28.4 16.1 36.4 35.5 Junior 61.5 50.0 37.6 59.1 24.7 21.8 Senior 2.0 5.8 5.7 6.0 5.4 7.4 More 0.1 0.0 0.1 0.1 4.4 6.5 Damang seems to trail the other villages in terms of senior high school attainment Junior school attainment is higher than the national average lagged effects of capitation grant?

Reasons for leaving School (per cent of respondents) Darmang Pokrom Oboadaka Konkonuru 7.5 4.2 Had enough education Failed exam No higher school/grade Could not afford to go To help parents Was ill Marriage/pregnancy Other 14.7 7.4 5.4 2.3 8.5 7.8 0.7 66.9 2.2 0.0 4.4 3.7 2.3 72.3 9.2 3.8 0.8 3.8 0.0 62.5 7.5 1.7 5.8 10.8 1.6 69.8 3.1 2.3 1.6 5.4 The main reason why people would have left school is because they could not afford it In Pokrom and Oboadaka people left to help parents Is there a Pineapple story?

Eastern Region Konkonuru Oboadaka Pokrom Darmang National Well with pump / borehole 92.9 33.3 26.0 60.5 27.1 30.4 Well without pump - 48.0 2.7 24.7 13.0 10.3 River 1.2 17.3 63.0 7.4 20.4 11.4 Public pipe/tap 2.4 - 1.4 1.2 15.6 10.7 Private outside pipe/tap - 1.2 - 1.2 2.5 5.0 Neighbouring HH - 1.3 - - - - Other 3.6 - 6.9 4.9 21.4 32.2

Occupation (per cent of respondents) Darmang Female (%) 1.2 1.2 Pokrom Oboadaka Female (%) Konkonuru Female (%) 4.8 Female (%) Item Artisan Baker/cook Carpenter/carver Construction worker Factory worker Farmer Hairdresser Health worker Herbalist Mason Not in labor force Not specified Office worker Other Shop attendant/trader Student Taxi/tro-tro driver Teacher Truck driver Unemployed Total Male (%) 2.6 1.3 5.3 2.6 2.6 55.3 Male (%) Male (%) Male (%) 6.9 1.5 1.5 1.5 83.8 8.3 8.3 2.8 37.5 31.7 6.1 1.2 41.4 2.9 56.4 1.3 94.2 51.8 7.2 1.4 1.4 6.9 2.8 1.5 4.9 1.3 2.9 1.3 1.5 3.6 1.3 5.3 1.3 1.5 1.2 4.8 24.1 2.8 2.8 2.8 1.4 8.3 4.2 8.5 41.5 2.9 47.1 1.5 1.5 1.3 37.2 1.5 10.5 7.9 1.3 1.3 77 4.4 2.4 1.2 1.5 2.9 2.9 2.6 2.4 1.4 72 71 70

Men are more likely to be employed as farmers generally However this is not true for Konkonuru Women are more likely to be a shop attendant or trader The Nsawam effect is quite evident in Damang more taxi and trotro drivers There are also signs of the Aburi effect on Konkonuru

Consumption by Households (Monthly GHC) Food, purchased Food, from farm Other purchases Total PC Cons/day (US$) consumption Community 125.86 38.94 139.02 303.82 Darmang Total P/C 29.96 9.39 33.59 72.94 1.68 88.75 42.61 177.58 308.94 Pokrom Total P/C 18.91 9.21 33.58 61.7 1.42 77.43 51.48 107.72 236.63 Oboadaka Total P/C 17.6 11.68 25.14 54.42 1.25 125.75 28.4 139.36 293.51 Konkonuru Total 33.83 7.12 34.63 75.58 P/C 1.74 On average individuals in these communities are very close to the poverty line

Household Incomes (Over Past 2 months - GHc) Other Bus. 132.34 131.26 141.45 125.84 117.27 11.29 108.96 63.00 38.83 57.59 20.74 87.58 59.98 53.83 37.84 174.92 93.21 150.96 137.04 123.95 Other Farms 2.25 7.97 6.30 2.29 0.42 14.87 8.21 1.04 9.55 18.77 15.21 0.10 1.57 5.42 0.85 -0.77 3.15 0.00 0.00 1.09 Other Income 4.42 7.29 9.97 12.13 9.15 15.19 45.49 22.04 16.09 36.13 0.00 14.89 25.11 18.33 24.76 3.06 21.31 8.67 12.23 14.84 Farm Cons n 46.78 43.34 33.23 37.50 33.85 47.35 34.51 39.49 46.75 44.96 57.46 44.23 44.02 55.51 56.17 35.76 27.44 23.31 25.83 29.68 Total Income 240.99 245.81 266.48 242.19 226.81 99.41 165.37 128.03 135.86 159.18 125.27 145.59 137.60 150.07 133.36 306.50 292.72 332.52 319.15 313.58 Round 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 Farms Wages 51.25 68.22 89.55 72.31 72.75 38.58 38.46 28.11 55.35 31.02 35.84 30.25 25.07 25.07 20.56 93.79 150.14 154.61 147.82 147.38 Darmang 3.96 -12.27 -14.02 -7.88 -6.63 -27.87 -70.25 -25.66 -30.70 -29.29 -3.98 -31.45 -18.16 -8.09 -6.83 -0.27 -2.52 -5.03 -3.77 -3.36 Pokrom Oboadaka Konko- Nuru Income seems to be higher in the communities that do less farming of pineapples

Mean Transfers Given and received by age GHc GHc Cash transfers In-kind transfers 40 40 30 30 Receipts Receipts 20 20 10 10 Gifts Gifts 0 0 100 20 40 60 80 20 40 60 80 120 140 160 180 Two interesting observations here Net transfers received is higher for older people (pensioners) Generally households are net receivers consistent with consumption > incomes

Household Asset- Mean GHC Financial assets 1,099 1,013 737 979 762 2,515 1,501 1,242 1,121 1,135 885 973 757 728 668 917 873 800 715 922 Community Darmang Round 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 Perishables 65 32 9 27 31 554 251 83 194 169 167 100 72 132 166 31 19 11 16 19 Durables 839 1,669 818 859 872 4,814 3,790 4,191 3,422 2,688 493 601 648 569 550 461 517 799 500 477 Livestock 170 182 167 185 168 576 597 639 641 575 233 261 272 303 263 145 194 163 164 140 Total assets 2,174 2,895 1,731 2,051 1,834 8,460 6,139 6,156 5,378 4,567 1,778 1,935 1,748 1,732 1,647 1,553 1,603 1,773 1,395 1,558 Pokrom Oboadaka Konkonuru

Financial assets seem to dominate except for Pokrom where durables are quite important Maybe related to history of pineapple business in pokrom Pokrom still dominates in terms of total assets Possibly driven by outliers

Shocks to the Household - Damang No of time occurred 1 2 1 1 1 1 1 3 1 2 1 1 3 2 1 1 4 1 1 Extent of shock 1 2 1 1 2 1 2 2 1 2 1 2 2 2 3 2 2 2 2 Value of Loss Shock Loss of productive assets Loss of contract or default by creditor Loss of a regular job of a household mem Death of other household member Loss or destruction of other consumption ACCIDENT (DESTRUCTION OF BEER BAR) Divorce, separation or abandonment Funeral expenses Loss of income due to illness or injury Failure or bankruptcy of business Death of household head or spouse Major loss of crops due to drought Loss of livestock due to theft Medical expenses due to illness or injury Division of father s property Major loss of crops due to pests and dis Loss of livestock due to death Major loss of crops due to other reasons ACCIDENT 6,000 1,239 1,140 814 433 400 400 354 293 257 233 200 178 176 175 170 158 150 100

Shocks to the Household - Konkonuru Value of Loss Extent of shock No of time occurred Shock Loss of productive assets DEATH OF 4 UNCLES Division of father s property Funeral expenses Major loss of crops due to other reasons Loss or destruction of other consumption Cut-off or decrease of regular remittanc Loss of contract or default by creditor Loss of livestock due to theft Loss of livestock due to death Failure or bankruptcy of business DEATH OF MOTHER 400 300 300 300 212 200 153 135 132 91 82 50 1 4 2 4 1 2 3 8 3 3 1 1 1 1 2 2 2 2 2 2 2 2 3 3

Shocks to the Household - Oboadaka Value of Loss No of time occurred Extent of shock Shock COMPENSATION (SHOT AND KILLED A MAN) SHOT A MAN TO DEATH DUPED FRIEND DEFRAUDED HIM PREGNANCY EXPENSES Failure or bankruptcy of business Loss of contract or default by creditor COURT EXPENSES Funeral expenses Division of father s property TWO CHILDREN IN SAME CLASS Withdrawal of government or NGO assistan LOW MARKET PRICE FOR PINEAPPLES MY DOG BIT SOMEBODY OUR DOG BIT SOMEBODY Loss of livestock due to death Loss of livestock due to theft Loss or destruction of other consumption Major loss of crops due to other reasons 5,000 5,000 3,000 2,900 1,500 1,266 948 920 876 800 400 290 200 200 200 166 141 1 1 1 1 1 1 1 1 1 1 2 2 1 2 1 2 2 1 4 3 3 2 2 1 18 22 1 22 2 1 1 2 1 1 2 1 1 1 75 53

Shocks to the Household - Pokrom Shock Lost home Cut-off or decrease of regular remittanc Death of household head or spouse Loss of a regular job of a household mem Loss of contract or default by creditor Failure or bankruptcy of business Funeral expenses Major loss of crops due to drought Major loss of crops due to other reasons Medical expenses due to illness or injur COURT CASE LOSS OF INCOME DUE ARREST OF FAMILY MEMB REPAIRS FOR DAMAGE TO ANOTHER VEHICLE Loss of productive assets Loss of income due to illness or injury Loss of livestock due to death Division of father s property Loss or destruction of other consumption Major loss of crops due to pests and dis CHILD'S TRAVEL EXPENSES SON'S TRAVEL EXPENSES Death of other household member Loss of livestock due to theft Divorce, separation or abandonment Value of Loss No of time occurred Extent of shock 5,000 4,600 4,500 4,355 1,779 1,119 1,083 833 567 548 500 500 500 398 379 377 316 225 200 150 150 140 108 0 1 2 1 1 1 1 1 1 1 2 1 2 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 3 2 2 2 1 1 2 2 2 2 2 3 2 2 1 3 2

Coping Strategies of Households Funeral expenses shock Coping strategy Damang 7.02 Konkonuru Oboadaka 13.79 Pokrom 4.65 ----- Ate less to reduce expenses ----- ----- ----- 2.33 Ate lower quality food ----- ----- 2.04 ----- Forced to change occupation ----- ----- 4.08 ----- Mortgaged consumption asset 1.75 ----- ----- 4.65 Mortgaged productive asset 36.84 41.38 32.65 48.84 None ----- ----- 6.12 ----- Other 1.75 24.49 27.91 Sold consumption asset ----- 1.72 ----- ----- Sold land 21.05 5.17 2.04 ----- Sold productive asset ----- 1.72 ----- ----- Took children out of school 7.02 29.31 20.41 6.98 Took help from others 24.56 5.17 8.16 4.65 Took loan from informal source ----- 1.72 ----- ----- Took loan from NGO/institution

Shocks In value terms different shocks ranks differently in different communities In terms of the number of times these shocks occur, funerals and death of hh member or relative is important true across communities Coping Strategies (Funerals) Majority will not have done anything could mean most of the above Getting help from others, taking loans from informal sources remain quite important Oboadaka and Pokrom, selling of assets is important

Most households in these communities are poor Idiosyncratic shocks are significant and wide- ranging Value of shocks sometimes exceed value of consumption Selling of assets remain an important strategy for coping with these shocks Other strategies rely on social networks how connected the households are