Consumption, habit formation, and savings: Evidence from a rural household panel survey

Aditya R. Khanal, Ashok Mishra, S. Nedumaran

Research output: Contribution to journalArticle

Abstract

Protecting consumption from the effects of uninsured risk is vital for rural farming households, who tend to be poor and live close to subsistence level. Income uncertainty and habit formation play important roles in the consumption and savings. Variability in weather conditions has a strong linkage with variability in agricultural income in developing countries. This study analyzes consumption and saving decisions of rural farm households in India. Using household panel data for 4 years, we estimated consumption equation accounting for habit formation under income uncertainty. Our findings suggest an evidence for habit formation among rural households. Additionally, we found that both annual and seasonal weather risks significantly influence savings among rural households. Findings from this study also suggest a robust and vibrant farm economy and that the nonfarm economy could contribute to the economic well-being of rural farming households.

Original languageEnglish (US)
JournalReview of Development Economics
DOIs
StateAccepted/In press - Jan 1 2018
Externally publishedYes

Fingerprint

savings
habits
income
evidence
farm
subsistence level
uncertainty
economy
role play
well-being
panel data
developing country
India
subsistence
consumption
household
developing world
weather
economics

ASJC Scopus subject areas

  • Geography, Planning and Development
  • Development

Cite this

Consumption, habit formation, and savings : Evidence from a rural household panel survey. / Khanal, Aditya R.; Mishra, Ashok; Nedumaran, S.

In: Review of Development Economics, 01.01.2018.

Research output: Contribution to journalArticle

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