Consumption Smoothing and Precautionary Savings in Thai Agricultural Households
Keywords:
income shocks, permanent income hypothesis, income uncertainty and precautionary savingsAbstract
This paper uses three waves of Thai Socio-Economic Panel Survey at the country level from the period 2005 to 2007 to examine how well agricultural households smooth their consumption in the face of income shock and income uncertainty. The empirical results reveal that Thai agricultural households are quite well in smoothing their consumption in the face of income shock. Additionally, households exhibit clearly the precautionary saving motive behavior as a result of the high positive significance of income uncertainty.
References
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2.Attanasio, O. P., Banks, J., Mighir, C. & Weber, G. (1999) Humps and bumps in lifetime consumption. Journal of Business and Economic Statistics, 17(1), pp. 22-35.
3.Asfaw, A. (2004) Is consumption insured against illness? evidence on vulnerability to health shocks in rural Ethiopia. Economic Development and Cultural Change, 53(1), pp. 115-129.
4.Bar-Ilan, A., & Blinder, A. S. (1988) The life-cycle permanent income model and consumer durables. Annales d’Economie et de Statistique.
5.Baxter, M. & Jerman, U.J (1999) Household production and the excess sensitivity of consumption to current income. American Economic Review, 89(4), pp.902-920.
6.Bhalla, S. S. (1980) The measurement of permanent income and its application to savings behavior. Journal of Political Economy, 88(4), pp.722-744.
7.Blanchard, O. J. & Mankiw, N.G. (1988) Consumption: beyond certainty equivalence. American Economic Review, 78(2), pp. 173-177.
8.Browning, M. & Lusardi, A. (1996) Household saving: micro theories and micro facts. Journal of Economic Literature, 34(4), pp.1797-1855.
9.Caballero, R. J. (1990) Consumption puzzles and precautionary savings. Journal of Monetary Economics, 25(1), pp.113-136.
10.Caballero, R. J. (1994) Notes on the theory and evidence on aggregate purchases of durable goods. Oxford Review of Economic Policy, 10, pp. 107-117.
11.Campbell, J. & Deaton, A. (1989) Why is consumption so smooth? The Review of Economic Studies, 56(3), pp. 357-373.
12.Carroll, C. D. (1994) How does future income affect current consumption? Quarterly Journal of Economics, 109(1), pp. 111-147.
13.Carroll, C. D. & Kimball, M. S. (2001) Liquidity constraints and precautionary saving. NBER Working Paper Number, W8496.
14.Carroll, C. D. & Samwick, A. A (1997) The nature of precautionary wealth. Journal of Monetary Economics, 40(1), pp. 41-71.
15.Carroll, C. D. & Summers, L. H. (1991) Consumption growth parallels income growth: Some New Evidence. NBER books, pp. 305-318.
16.Case, A. (1995) Symposium on consumption smoothing in developing countries. The Journal of Economic Perspectives, 9(3), pp. 81-82.
17.Cheikha, D. & Mishra, A.K. (2009) Permanent income and the importance of precautionary saving: an instrument variable approach. Selected paper prepared for presentation at the American Agricultural Economics Association Annual Meetings, Milwaukee, Wisconsin, July 26-28.
18.Chen, K. Z., Meilke, K. D. & Turvey, C. (1999) Income risk and farm consumption behavior. Agricultural Economics, 20(2), 173-183.
19.Dardanoni, V. (1991) Precautionary saving under income uncertainty: a cross-sectional analysis. Applied Economics, 23(1), pp. 153-160.
20.Deaton, A. (1986) Life-cycle models of consumption: Is the evidence consistent with the theory? NBER Working Paper Series, No. 1920, pp.1-47.
21.Dercon, S., Hoddinott, J. & Woldehanna, T. (2005) Shocks and consumption in 15 Ethiopian villages, 1999-2004. Journal of African Economies, 14(4), pp. 559-585.
22.Diebold, F.X. & Rudebush, G.D (1991) Is consumption too smooth? long memory and the Deaton paradox. The Review of Economics and Statistics, 73(1), pp. 1-9.
23.Engen, E. M. & Gruber, J. (2001) Unemployment insurance and precautionary saving. Journal of Monetary Economics, 47(3), pp. 545-579.
24.Ersado, L., Alwang, J. & Alderman, H. (2003) Changes in consumption and saving behavior before and after economic shocks: evidence from Zimbabwe. Economic Development and Cultural Change, 52(1), pp. 187-215.
25.Fafchamps, M., Udry, C. & Czukas, K. (1998) Drought and saving in west Africa: Are livestock a buffer stock. Journal of Development Economics, 55(2), pp. 273-305.
26.Fernandez-Corugedo, E. (2002) Soft liquidity constraints and precautionary saving. The Bank of England’s Working Paper.
27.Flavin, M. A. (1981) The adjustment of consumption to changing expectations about future income. Journal of Political Economy, 89(5), pp. 974-1009.
28.Gourinchas, P. O. & Parker, J. (2002) Consumption over the life cycle. Econometrica, 70(1), pp. 47-89.
29.Guariglia, A. & Kim, B.Y. (2004) Earnings uncertainty, precautionary saving, and moonlighting in Russia. Journal of Population Economics, 17(2), pp. 289-310.
30.Guiso, L., Jappelli, T. & Terlizzese, D (1992), Earnings uncertainty and precautionary saving. Journal of Monetary Economics, 30(2), pp. 307-337.
31.Hall, R. E. (1978) Stochastic implications of the life cycle-permanent income hypothesis: theory and evidence. Journal of Political Economy, 86(6), pp. 971-987.
32.Hansen, G.D. & Imrohoroglu, S. (2008) Consumption over the Life Cycle: The Role of Annuities. Review of Economic Dynamics, 11(3), 566-583.
33.Jacoby, H.G. & Skoufias, E. (1997) Risk, financial markets, and human capital in developing country. The Review of Economic Studies, 64(3), pp. 311-335.
34.Jacoby, H.G. & Skoufias, E (1998) Testing theories of consumption behavior using information on aggregate shocks: income seasonality and rainfall in rural India. American Journal of Agricultural Economics, 80(1), pp.1-14.
35.Jalan, J. & Ravallion, M. (2001) Behavioral responses to risk in rural China. Journal of Development Economics, 66(1), pp. 23-49.
36.Jappelli, T. & Pistaferri, L. (2000) Using subjective income expectations to test for excess sensitivity of consumption to predicted income growth. European Economic Review, 44(2), pp. 337-358.
37.Kaboski, J. P. & Townsend, R. M. (2005) Policies and impact: an analysis of villages –level microfinance institutions. Journal of the European Economic Association, 3(1), pp.1-50.
38.Kanchanakul, N., Phuthavatrat, S. & Hultrakul, K. (2000) Fertility status of soils in Thailand. Office of Soil Survey and Research, Land Development Department, Thailand.
39.Kazianga, H. & Udry, C. (2006) Consumption smoothing? livestock insurance and drought in rural Burkina Faso. Journal of Development Economics, 79(2), pp. 413-446.
40.Kimball, M. S. & Mankiw, N. G (1989) Precautionary saving and the timing of Taxes. Journal of Political Economy, 97(4), pp. 863-879.
41.Kong, M.K., Lee, J.Y. & Lee, H.K (2008) Precautionary motive for saving and medical expenses under health uncertainty: evidence from Korea. Economics Letters, 100(1), pp. 76-79.
42.Lee, J. J. & Sawada, Y. (2010) Precautionary saving under liquidity constraints: evidence from rural Pakistan. Journal of Development Economics, 91(1), pp. 77-86.
43.Limosani, M. & Millemaci, E. (2011) Evidence on excess sensitivity of consumption to predictable income growth. Research in Economics, 65(2), pp. 71-77.
44.Luengo-Prado, M.J. & Sorensen, B.E. (2008) What can explain excess smoothness and sensitivity of state-level consumption? The Review of Economics and Statistics, 90(1), pp. 65-80.
45.Mankiw, N. G. (1982) Hall consumption hypothesis and durable goods. Journal of Monetary Economics, 417-425.
46.Meng, X. (2003) Unemployment, consumption smoothing, and precautionary saving in urban China. Journal of Comparative Economics, 31(3), pp. 465-485.
47.Menkhoff, L. & Rungruxsirivorn, O. (2010) Do village funds improve access to finance? evidence from Thailand. World Development, 39(1), pp. 110-122.
48.Miles, D. (1997) A household level study of the determinants of income and consumption. The Economic Journal, 107(440), pp. 1-25.
49.Naga, R.H.A. & Bolzani, E (2006) Poverty and permanent income: a methodology for cross-section data. Annals of Economics and Statistics, 81, pp. 195-223.
50.Paulson, A. L. (2000) Insurance motives for migration: evidence from Thailand. Mimeo. Northwestern University.
51.Paxson, C. H. (1992) Using weather variability to estimate the response of savings to transitory income in Thailand. American Economic Review, 82(1), pp. 15-33.
52.Paxson, C. H. (1996) Saving and growth: evidence from micro data. European Economic Review, 40(2), pp. 255-288.
53.Pistaferri, L. (2001) Superior information, income shocks, and the permanent income hypothesis. The Review of Economics and Statistics, 83(3), pp. 465-476.
54.Pootrakul, K ., Ariyapruchya, K. & Sodsrichai, T. (2005) Long-term saving in Thailand: Are we saving enough and what are the risks? Bank of Thailand Research Symposium.
55.Rigg, J. & Salamanca, A. (2009) Managing Risk and Vulnerability in Asia: A (re) Study from Thailand, 1982-1983 and 2008. Asia Pacific Viewpoint, 50(3), 255-270.
56.Ruangthammasak, J. (2008) Thai Household Consumption and Precautionary Saving under Income Uncertainy. Maser’s thesis, Chulalongkorn University.
57.Rungruxsirivorn, O. (2007) Household risk management in rural and urban Thailand. Proceedings of the German Development Conference, Gottingen 2007 / Verein fur Socialpolitik, Research Committee Development Economics, No. 27.
58.Skinner, J. (1988) Risky income, life cycle consumption, and precautionary savings. Journal of Monetary Economics, 22(2), pp. 237-255.
59.Thurow, L.C. (1969) The optimum lifetime distribution of consumption expenditures. American Economic Review, 59(3), pp. 324-330.
60.Tongruksawattana, S., Waibel, H. & Schmidt, E. (2010) How do rural households cope with schocks? evidence from Northeast Thailand. Proceedings of the German Development Economics Conference, Hannover 2010, No. 53.
61.Townsend, R. M. (1995) Consumption insurance: an evaluation of risk-bearing systems in low – income economics. Journal of Economic Perspectives, 9(3), pp. 83-102.
62.Ventura, L. & Eisenhauer, J. G. (2006) Prudence and precautionary saving. Journal of Economics and Finance, 30(2), pp. 155-168 .
63.Wang, N. (2004) Precautionary saving and partially observed income. Journal of Monetary Economics, 51(8), pp. 1945-1681.
64.Wang, N. (2006) Generalizing the permanent-income hypothesis: revisiting Friedman’s conjecture on consumption. Journal of Monetary Economics, 53(4), pp. 737-752.
65.World Bank. (2010) The Cost to Developing Countries of Adapting to Climate Change: New Methods and Estimates-the Global Report of the Economics of Adaptation to Climate Change Study. Consultation Draft. Working Paper, No. 62408.
66.Zhou, Y. (2003) Precautionary saving and earnings uncertainty in Japan: a household-level analysis. Journal of the Japanese and International Economies, 17(2), pp. 192-212.
2.Attanasio, O. P., Banks, J., Mighir, C. & Weber, G. (1999) Humps and bumps in lifetime consumption. Journal of Business and Economic Statistics, 17(1), pp. 22-35.
3.Asfaw, A. (2004) Is consumption insured against illness? evidence on vulnerability to health shocks in rural Ethiopia. Economic Development and Cultural Change, 53(1), pp. 115-129.
4.Bar-Ilan, A., & Blinder, A. S. (1988) The life-cycle permanent income model and consumer durables. Annales d’Economie et de Statistique.
5.Baxter, M. & Jerman, U.J (1999) Household production and the excess sensitivity of consumption to current income. American Economic Review, 89(4), pp.902-920.
6.Bhalla, S. S. (1980) The measurement of permanent income and its application to savings behavior. Journal of Political Economy, 88(4), pp.722-744.
7.Blanchard, O. J. & Mankiw, N.G. (1988) Consumption: beyond certainty equivalence. American Economic Review, 78(2), pp. 173-177.
8.Browning, M. & Lusardi, A. (1996) Household saving: micro theories and micro facts. Journal of Economic Literature, 34(4), pp.1797-1855.
9.Caballero, R. J. (1990) Consumption puzzles and precautionary savings. Journal of Monetary Economics, 25(1), pp.113-136.
10.Caballero, R. J. (1994) Notes on the theory and evidence on aggregate purchases of durable goods. Oxford Review of Economic Policy, 10, pp. 107-117.
11.Campbell, J. & Deaton, A. (1989) Why is consumption so smooth? The Review of Economic Studies, 56(3), pp. 357-373.
12.Carroll, C. D. (1994) How does future income affect current consumption? Quarterly Journal of Economics, 109(1), pp. 111-147.
13.Carroll, C. D. & Kimball, M. S. (2001) Liquidity constraints and precautionary saving. NBER Working Paper Number, W8496.
14.Carroll, C. D. & Samwick, A. A (1997) The nature of precautionary wealth. Journal of Monetary Economics, 40(1), pp. 41-71.
15.Carroll, C. D. & Summers, L. H. (1991) Consumption growth parallels income growth: Some New Evidence. NBER books, pp. 305-318.
16.Case, A. (1995) Symposium on consumption smoothing in developing countries. The Journal of Economic Perspectives, 9(3), pp. 81-82.
17.Cheikha, D. & Mishra, A.K. (2009) Permanent income and the importance of precautionary saving: an instrument variable approach. Selected paper prepared for presentation at the American Agricultural Economics Association Annual Meetings, Milwaukee, Wisconsin, July 26-28.
18.Chen, K. Z., Meilke, K. D. & Turvey, C. (1999) Income risk and farm consumption behavior. Agricultural Economics, 20(2), 173-183.
19.Dardanoni, V. (1991) Precautionary saving under income uncertainty: a cross-sectional analysis. Applied Economics, 23(1), pp. 153-160.
20.Deaton, A. (1986) Life-cycle models of consumption: Is the evidence consistent with the theory? NBER Working Paper Series, No. 1920, pp.1-47.
21.Dercon, S., Hoddinott, J. & Woldehanna, T. (2005) Shocks and consumption in 15 Ethiopian villages, 1999-2004. Journal of African Economies, 14(4), pp. 559-585.
22.Diebold, F.X. & Rudebush, G.D (1991) Is consumption too smooth? long memory and the Deaton paradox. The Review of Economics and Statistics, 73(1), pp. 1-9.
23.Engen, E. M. & Gruber, J. (2001) Unemployment insurance and precautionary saving. Journal of Monetary Economics, 47(3), pp. 545-579.
24.Ersado, L., Alwang, J. & Alderman, H. (2003) Changes in consumption and saving behavior before and after economic shocks: evidence from Zimbabwe. Economic Development and Cultural Change, 52(1), pp. 187-215.
25.Fafchamps, M., Udry, C. & Czukas, K. (1998) Drought and saving in west Africa: Are livestock a buffer stock. Journal of Development Economics, 55(2), pp. 273-305.
26.Fernandez-Corugedo, E. (2002) Soft liquidity constraints and precautionary saving. The Bank of England’s Working Paper.
27.Flavin, M. A. (1981) The adjustment of consumption to changing expectations about future income. Journal of Political Economy, 89(5), pp. 974-1009.
28.Gourinchas, P. O. & Parker, J. (2002) Consumption over the life cycle. Econometrica, 70(1), pp. 47-89.
29.Guariglia, A. & Kim, B.Y. (2004) Earnings uncertainty, precautionary saving, and moonlighting in Russia. Journal of Population Economics, 17(2), pp. 289-310.
30.Guiso, L., Jappelli, T. & Terlizzese, D (1992), Earnings uncertainty and precautionary saving. Journal of Monetary Economics, 30(2), pp. 307-337.
31.Hall, R. E. (1978) Stochastic implications of the life cycle-permanent income hypothesis: theory and evidence. Journal of Political Economy, 86(6), pp. 971-987.
32.Hansen, G.D. & Imrohoroglu, S. (2008) Consumption over the Life Cycle: The Role of Annuities. Review of Economic Dynamics, 11(3), 566-583.
33.Jacoby, H.G. & Skoufias, E. (1997) Risk, financial markets, and human capital in developing country. The Review of Economic Studies, 64(3), pp. 311-335.
34.Jacoby, H.G. & Skoufias, E (1998) Testing theories of consumption behavior using information on aggregate shocks: income seasonality and rainfall in rural India. American Journal of Agricultural Economics, 80(1), pp.1-14.
35.Jalan, J. & Ravallion, M. (2001) Behavioral responses to risk in rural China. Journal of Development Economics, 66(1), pp. 23-49.
36.Jappelli, T. & Pistaferri, L. (2000) Using subjective income expectations to test for excess sensitivity of consumption to predicted income growth. European Economic Review, 44(2), pp. 337-358.
37.Kaboski, J. P. & Townsend, R. M. (2005) Policies and impact: an analysis of villages –level microfinance institutions. Journal of the European Economic Association, 3(1), pp.1-50.
38.Kanchanakul, N., Phuthavatrat, S. & Hultrakul, K. (2000) Fertility status of soils in Thailand. Office of Soil Survey and Research, Land Development Department, Thailand.
39.Kazianga, H. & Udry, C. (2006) Consumption smoothing? livestock insurance and drought in rural Burkina Faso. Journal of Development Economics, 79(2), pp. 413-446.
40.Kimball, M. S. & Mankiw, N. G (1989) Precautionary saving and the timing of Taxes. Journal of Political Economy, 97(4), pp. 863-879.
41.Kong, M.K., Lee, J.Y. & Lee, H.K (2008) Precautionary motive for saving and medical expenses under health uncertainty: evidence from Korea. Economics Letters, 100(1), pp. 76-79.
42.Lee, J. J. & Sawada, Y. (2010) Precautionary saving under liquidity constraints: evidence from rural Pakistan. Journal of Development Economics, 91(1), pp. 77-86.
43.Limosani, M. & Millemaci, E. (2011) Evidence on excess sensitivity of consumption to predictable income growth. Research in Economics, 65(2), pp. 71-77.
44.Luengo-Prado, M.J. & Sorensen, B.E. (2008) What can explain excess smoothness and sensitivity of state-level consumption? The Review of Economics and Statistics, 90(1), pp. 65-80.
45.Mankiw, N. G. (1982) Hall consumption hypothesis and durable goods. Journal of Monetary Economics, 417-425.
46.Meng, X. (2003) Unemployment, consumption smoothing, and precautionary saving in urban China. Journal of Comparative Economics, 31(3), pp. 465-485.
47.Menkhoff, L. & Rungruxsirivorn, O. (2010) Do village funds improve access to finance? evidence from Thailand. World Development, 39(1), pp. 110-122.
48.Miles, D. (1997) A household level study of the determinants of income and consumption. The Economic Journal, 107(440), pp. 1-25.
49.Naga, R.H.A. & Bolzani, E (2006) Poverty and permanent income: a methodology for cross-section data. Annals of Economics and Statistics, 81, pp. 195-223.
50.Paulson, A. L. (2000) Insurance motives for migration: evidence from Thailand. Mimeo. Northwestern University.
51.Paxson, C. H. (1992) Using weather variability to estimate the response of savings to transitory income in Thailand. American Economic Review, 82(1), pp. 15-33.
52.Paxson, C. H. (1996) Saving and growth: evidence from micro data. European Economic Review, 40(2), pp. 255-288.
53.Pistaferri, L. (2001) Superior information, income shocks, and the permanent income hypothesis. The Review of Economics and Statistics, 83(3), pp. 465-476.
54.Pootrakul, K ., Ariyapruchya, K. & Sodsrichai, T. (2005) Long-term saving in Thailand: Are we saving enough and what are the risks? Bank of Thailand Research Symposium.
55.Rigg, J. & Salamanca, A. (2009) Managing Risk and Vulnerability in Asia: A (re) Study from Thailand, 1982-1983 and 2008. Asia Pacific Viewpoint, 50(3), 255-270.
56.Ruangthammasak, J. (2008) Thai Household Consumption and Precautionary Saving under Income Uncertainy. Maser’s thesis, Chulalongkorn University.
57.Rungruxsirivorn, O. (2007) Household risk management in rural and urban Thailand. Proceedings of the German Development Conference, Gottingen 2007 / Verein fur Socialpolitik, Research Committee Development Economics, No. 27.
58.Skinner, J. (1988) Risky income, life cycle consumption, and precautionary savings. Journal of Monetary Economics, 22(2), pp. 237-255.
59.Thurow, L.C. (1969) The optimum lifetime distribution of consumption expenditures. American Economic Review, 59(3), pp. 324-330.
60.Tongruksawattana, S., Waibel, H. & Schmidt, E. (2010) How do rural households cope with schocks? evidence from Northeast Thailand. Proceedings of the German Development Economics Conference, Hannover 2010, No. 53.
61.Townsend, R. M. (1995) Consumption insurance: an evaluation of risk-bearing systems in low – income economics. Journal of Economic Perspectives, 9(3), pp. 83-102.
62.Ventura, L. & Eisenhauer, J. G. (2006) Prudence and precautionary saving. Journal of Economics and Finance, 30(2), pp. 155-168 .
63.Wang, N. (2004) Precautionary saving and partially observed income. Journal of Monetary Economics, 51(8), pp. 1945-1681.
64.Wang, N. (2006) Generalizing the permanent-income hypothesis: revisiting Friedman’s conjecture on consumption. Journal of Monetary Economics, 53(4), pp. 737-752.
65.World Bank. (2010) The Cost to Developing Countries of Adapting to Climate Change: New Methods and Estimates-the Global Report of the Economics of Adaptation to Climate Change Study. Consultation Draft. Working Paper, No. 62408.
66.Zhou, Y. (2003) Precautionary saving and earnings uncertainty in Japan: a household-level analysis. Journal of the Japanese and International Economies, 17(2), pp. 192-212.
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2013-06-21
How to Cite
Sirisankanan, A. (2013). Consumption Smoothing and Precautionary Savings in Thai Agricultural Households. Thailand and The World Economy, 31(2), 37–63. Retrieved from https://so05.tci-thaijo.org/index.php/TER/article/view/136866
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