Health Shocks and Overindebtedness: A Panel Data Analysis From Rural Viet Nam

Abstract

Rural households in developing countries have limited capacity to cope with and manage shocks, thereby resulting in chronic poverty, indebtedness, and a decline in overall well-being. Therefore, this study analyzes the effects of health shocks on overindebtedness in rural Viet Nam and examines the role of the national health insurance program in mitigating the negative effects of health shocks using four rounds of a balanced panel data set of about 1,750 households observed over a decade (2007, 2010, 2013, 2016). Employing the household- level fixed-effect model, this study finds that health shocks reduce household earned income and food expenditure and increase health expenditure among rural Vietnamese households. It also finds that households cope with health shocks mainly by borrowing from more sources. Households experiencing health shocks are 2.2 to 3.1 percentage points more likely to be overindebted. This study also finds that these negative effects of health shocks are statistically significant only among uninsured households, suggesting that social health insurance can reduce households’ vulnerability to the consequences of health shocks. These findings strongly support efforts to expand access to social health insurance in rural Viet Nam.