This paper employs a panel of household data from Korea to examine how households coped with the shortfall in consumption during 1994-1998, which encompasses the financial crisis of 1997. We adopt the econometric framework from Glewwe and Hall [Glewwe, P., & Hall, G. (1998). Are some groups more vulnerable to macroeconomic shocks than others? Hypothesis tests based on panel data from Peru.f Journal of Development Economics, 56, 181-206] and estimate a household consumption growth equation. We find that larger households tend to be protected to a greater extent from shortfall in consumption, and that the vulnerability of female-headed households is not greater than that of male-headed households. Among the coping strategies, private transfers act both as an ex-ante risk-managing device and an ex-post coping mechanism. Urban households and those headed by the self-employed experienced a larger shortfall in consumption during the crisis. While credit was used to smooth consumption of children's education, medical and childcare services during the pre-crisis years, it was not utilized as a coping strategy during the 1997 crisis, possibly due to the credit crunch caused by stringent monetary policies. Instead, households cut back consumption of luxurious and durable goods to preserve food consumption and spending on children's education. We do not find evidence of households liquidating their assets to cushion the shortfall in consumption, during the 1997 crisis. It is possible that they did not liquidate their assets because land and stock prices declined significantly.
Bibliographical noteFunding Information:
We would like to thank Tamar Manuelyan Atinc, Shubham Chaudhuri, Hyehoon Lee, Myoungjae Lee, Bong Min Yang, an anonymous referee and participants at the Vulnerability and Poverty Workshop, the Third Asian Development Forum, Bangkok, June 12–14, 2001 for valuable comments. The work of Sung Jin Kang was supported by a Korea University grant.
- Currency crisis in Korea
- Risk-coping strategies
ASJC Scopus subject areas
- Economics and Econometrics