Risk coping strategies and rural household production efficiency: Quasi-experimental evidence from El Salvador

The effects of natural disasters on poor people and on their ability to cope with such crises have been a topic of increasing concern and debate. Part of this debate has focused on the potential role of financial services in helping the affected households to manage the consequences of the disaster and also prepare for future disasters. However, the measurement of the effects of access to financial services and risk management strategies remains a challenging assignment.; This dissertation seeks to understand the factors that affect the technical efficiency of households in an environment characterized by a high incidence of exogenous shocks and natural disasters. In particular, it pays special attention to the relationship between the efficiency of the households, their differential access to financial services, and the effects of exogenous shocks. The research uses data envelopment analysis to estimate output-based measures of efficiency for agricultural households located in the rural areas of El Salvador. The analysis of efficiency is conducted at the household level, taking into account the significant role of off-farm activities in income generation. In turn, econometric techniques are used to identify factors affecting efficiency and its changes over time.; To accomplish this, the dissertation uses information from a four-observations panel data set collected between 1995 and 2001 for rural households in El Salvador. This data set provides detailed information on the households' farm and off-farm productive activities, in addition to characteristics of the households and their members The period covered by the surveys was marked by significant exogenous shocks (e.g., earthquakes and droughts), which generate key information needed to achieve the goal of this dissertation.; The results reveal that the efficiency of many households is fairly low. However, they also show that there have been improvements over the years, particularly for households with initially low levels of efficiency. These improvements have not happened in all years, as exogenous systemic shocks have temporarily reversed the process of improvement. The econometric results suggest that the structural transformation being experienced in the rural areas greatly influences the efficiency of the households. During this process, subsistence farmers move towards becoming households with greater integration into markets and different non-agricultural activities.; Most importantly, the results confirm that access to financial services increases the efficiency of the households even if they are not affected by the shocks, in addition to mitigating the negative effects of exogenous shocks for those who are affected. This result supports the hypothesis that, in a risky environment such as El Salvador, households with access to formal loans, formal deposits, or remittances experience an increase in efficiency over time and gain some protection against the adverse effects of shocks.