Household financial adjustments to economic and non-economic shocks in Kyrgyzstan

Abstract

Households in developing countries face various shocks that threaten their economic stability and force them to take action, but in the context of Kyrgyzstan, there is insufficient research on how strategies for overcoming these shocks differ depending on their type. This study focuses on how households in Kyrgyzstan adjust financially to different shocks by adopting coping strategies, with an emphasis on the differences between economic and non-economic shocks. Shocks in this study are defined as unexpected or unforeseen events that negatively affect household welfare. The financial strategies divided into high-cost and low-cost. Taking into account existing literature on coping mechanisms in households and behavior in overcoming shocks, the study also considers a number of socioeconomic characteristics that may influence decisions on overcoming shocks. Taking these factors into account, the study aims to highlight the impact of the type of shock on coping behavior, given the heterogeneity of households in Kyrgyzstan. In our work, we took data from the 2019 Life in Kyrgyzstan survey and applied logistic regression to see how people cope with difficulties depending on what has happened to them. To make it clearer, we showed how the probability of choosing a particular strategy change depending on the situation. It turns out that people behave differently in a crisis, and this behavior depends on the specific misfortune that has befallen them. Economic shocks are more closely linked to financial mechanisms for overcoming the crisis, such as borrowing, while shocks related to health and social issues are linked to all measures including high-cost. Overall, this study contributes to the literature on household resilience by providing empirical evidence from Kyrgyzstan on how different types of shocks affect coping strategies. The findings have potential policy implications, particularly for the development of risk reduction policies aimed at reducing reliance on costly coping mechanisms that can undermine long-term household well-being and drive households into poverty traps.