Coping with health shocks in Ethiopia: A multivariate probit analysis of household strategies

In contexts like Ethiopia, where formal health insurance and financial markets are underdeveloped, households face significant challenges in managing the economic consequences of health shocks. This study analyzes household coping strategies in response to illness and death shocks using two rounds of nationally representative Ethiopian Socioeconomic Survey data. A multivariate probit model is employed to capture the interdependent nature of five active coping strategies. The findings reveal that coping responses vary across household characteristics, including poverty status, gender of the household head, and rural-urban location. Death shocks commonly trigger increased labor participation, particularly among rural and female-headed households, while urban households often combine labor responses with asset sales or informal help. In contrast, illness shocks are primarily addressed through savings, with urban and male-headed households supplementing savings by selling assets, and rural households relying on a mix of savings and credit. Vulnerable groups – especially poor and female-headed households – tend to depend on coping mechanisms, such as asset liquidation and informal borrowing, which pose long-term risks to their economic stability. These results underscore the need for integrated policy interventions. Expanding community-based and social health insurance, providing accessible microfinance, strengthening preventive health programs, and enhancing targeted social protection are critical steps to mitigate the welfare losses associated with health shocks. Strengthening household resilience is essential not only for public health but also for advancing sustainable development and poverty reduction in Ethiopia and similar low-income settings.