Economic Consequences of Health Shocks and Coping Strategies: Evidence from Urban Poor Households in Bangladesh

This study investigates the economic consequences of health shocks and coping mechanisms for poor urban households in Bangladesh using longitudinal household survey and qualitative data. Two measures of health shocks are included in the empirical analysis: a recent death of a household member and a recent serious illness that incapacitates a household member. The findings confirm that the effects of health shocks on income differ between earned and unearned income. The serious illness only affects earned income negatively and significantly suggesting intra household labour adjustment cannot compensate lost income though it can compensate lost worked hours. The regression results reject the hypothesis of consumption smoothing in the face of a death of a household member. On the other hand, results suggest that coping strategies lead households in a vulnerable situation. It finds that households facing serious illness are more likely to deplete assets and borrow money to finance health expenditure. Subsequently, increased debt-to-income ratio significantly reduces future food consumption. It suggests, traditional coping mechanisms do not offer enough financial protection for poor urban households and even they have adverse effects on household welfare. These findings indicate the importance of institutional innovations to address issues of coping with health shocks and financing health care. -- Relevance to Development Studies -- Recently, health has been getting importance in terms of investment in human capital and in the study of development economies. Previous studies have demonstrated the potential effects of health shocks on economic outcomes more generally using either rural or national data. Little is known about the ability of poor households in urban areas to cope with it. This study is supposed to fill this gap by exploring economic consequences of health shocks and coping strategies for poor urban households, which would be important in policy implication for protecting poor and promoting their health and thereby human capital.