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

Khanal, A R and Mishra, A K and Nedumaran, S (2018) Consumption, habit formation, and savings: Evidence from a rural household panel survey. Review of Development Economics (TSI), 23 (1). pp. 1-19. ISSN 1363-6669

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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.

Item Type: Article
Divisions: Research Program : Innovation Systems for the Drylands (ISD)
Uncontrolled Keywords: India, rural farming households, rural households, farm economy, nonfarm economy, economic well‐being, rural farming, agriculture households, agriculture, consumption, saving decisions, rural farm households, rural India, household panel data, rural people, panel data, income uncertainty, weather risks
Subjects: Others > Climate Risk
Others > Rural Development
Others > Rural Economy
Others > Agriculture-Farming, Production, Technology, Economics
Others > Indian Agriculture
Others > Agricultural Economics
Depositing User: Mr Ramesh K
Date Deposited: 24 Sep 2018 08:30
Last Modified: 15 Feb 2019 03:55
Official URL:
Acknowledgement: UNSPECIFIED
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