Household coping behavior and its contribution to resilience to global macroeconomic shocks in Vanuatu and Solomon Islands

• DOI: http://doi.org/10.1111/rode.12522
• Date: 01 November 2018
• Author: Lachlan McDonald
• Published date: 01 November 2018

REGULAR ARTICLE

Household coping behavior and its contribution to

resilience to global macroeconomic shocks in

Vanuatu and Solomon Islands

Lachlan McDonald

RMIT University, Melbourne, Australia

Correspondence

Lachlan McDonald, School of Economics,

Finance and Marketing, Level 11

Building 80, 445 Swanston Street,

Melbourne, VIC 3000, Australia.

Email: plachlan88@gmail.com

Abstract

This paper examines the resilience of households in Vanu-

atu and Solomon Islands—two small island developing

states in Melanesia renowned for their vulnerabilities—to

the adverse effects of global macroeconomic shocks. The

focus is on the spike in international food and fuel prices

in 2008 and the subsequent shock to global demand,

known as the Global Economic Crisis (GEC). Using a

unique retrospective cross-section survey, the results show

that experience of these shocks was widespread across

urban and rural areas. Households with more education,

access to income-generating activities—particularly in the

informal sector—and greater wealth were best placed to

withstand a deterioration in their well-being, measured as

a fall in self-reported disposable income. Households also

employed a variety of coping strategies in response to the

shocks. Local food gardens and informal insurance are

seen as key safety nets in times of stress, yet neither pro-

vided full insurance from the shocks. Some households,

particularly in urban areas, employed harmful coping

strategies, such as reducing spending on health, education,

and food. While potentially effective in withstanding a

temporary fall in disposable income, these responses are

likely to weaken overall resilience and leave households

vulnerable to future shocks.

DOI: 10.1111/rode.12522

Rev Dev Econ. 2018;22:e185–e201. wileyonlinelibrary.com/journal/rode ©2018 John Wiley & Sons Ltd

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INTRODUCTION

Households in developing counties are subject to a wide variety of shocks and stressors (B

en

e, Al-

Hassan et al., 2016; Heltberg & Lund, 2009; Wagstaff & Lindelow, 2014). Households employ a

diverse and complex mix of strategies to deal with the effects of shocks (Morduch, 1995), though

inter-temporal variability in well-being can nonetheless account for a large share of observed pov-

erty in developing counties (Jalan & Ravallion, 2000). In addition to directly pushing households

into poverty, shocks can gradually lead to poverty by eroding households’stock of assets as they

try to cope (Hoddinott, 2006).

The concept of resilience—that is, the ability to endure shocks and stressors and bounce back

—is useful for examining the impacts of shocks. Resilience links shock exposure with households’

capacities to manage risk, their coping behavior once shocks have occurred and the resultant

change in well-being (Constas et al., 2014; B

en

e, Frankenberger, & Nelson, 2015). In this sense,

there is an explicit recognition of the role that individual-level agency plays in influencing well-

being outcomes during periods of volatility. Resilience analyses have emerged as an important

guide for social protection policy and humanitarian interventions. The dynamics of the past can be

a useful guide for poverty prevention policies, particularly in contexts where shocks are frequent,

since past events can be interpreted as a proxy for developments in the future to similar risks

(Hoddinott & Quisumbing, 2003). Thus, how households behaved during a shock, and the

observed changes in well-being that result, can reveal important information for policymakers on

the coping options available in the local context, households’revealed preferences among those

options, and their efficacy in staving off poverty (Bhattamishra & Barrett, 2010). Examining cop-

ing behavior can also shed light on the enduring consequences of a shock. Temporary shocks can

have long-term consequences for well-being when households cope with their immediate effects

by depleting their assets below a critical threshold (Carter & Barrett, 2006; Hoddinott, 2006); and

depleting human capital through actions such as withdrawing children from school (Beegle, Dehe -

jia, & Gatti, 2006); reducing health expenditure (Conceicß

~

ao, Mukherjee, & Nayyar, 2009); and

reducing food intake (Hoddinott, 2006).

A wide body of literature has emerged to examine household resilience to shocks (see Heltberg,

Oviedo, & Talukdar, 2015, for a summary). Studies have examined the effects of a diverse array

of shocks, including covariate economic shocks (Heltberg, Hossain, Reva, & Turk, 2013); natural

disasters (Hoddinott, 2006); and idiosyncratic shocks, such as illness that affect particular house-

holds (Wagstaff & Lindelow, 2014). Because it describes a process and is multidimensional, resili-

ence is inherently difficult to measure, though a common approach has been to identity the

contextual factors that were associated with successfully avoiding a fall in well-being after the

onset of a shock (Frankenberger & Nelson, 2013). This includes household characteristics and

livelihood strategies (Corbacho, Garcia-Escribano, & Inchaustel, 2007); assets (Arun, Annim, &

Arun, 2013); and the specific coping responses employed (B

en

e, Al-Hassan et al., 2016; Schwartz

et al., 2011). Recognizing that resilience is ongoing, and that shocks are frequent, high-frequency

monitoring is optimal for measuring resilience (Barrett & Headey, 2014; B

en

e, Headey, Haddad,

& Von Grebmer, 2016), though because of data limitations, retrospective cross-sectional analyses

of resilience are not uncommon (Heltberg & Lund, 2009; Wagstaff & Lindelow, 2014).

This study uses a unique retrospective cross-section survey to examine the resilience of house-

holds in Vanuatu and Solomon Islands to the sharp spike in international food and fuel prices in

2008 and the subsequent shock to global demand, known as the global economic crisis (GEC).

Collectively, these shocks had disastrous impacts on households (see, e.g., Akter & Basher, 2014;

Dimova & Gbakou, 2013; Gibson & Kim, 2013) and offer good opportunity for studying the

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