AGRICULTURAL

ECONOMICS

Agricultural Economics 36 (2007) 169180

Coping with flood: role of institutions in Bangladesh

Shahidur R. Khandker
Development Research Group, The World Bank, 1818 H Street, NW, Washington, DC 20433
Received 11 August 2004; received in revised form 22 July 2005; accepted 9 October 2006

Abstract
The article examines the coping strategies that rural households adopted during the 1998 flood in Bangladesh and assesses its impact on household
welfare, including coping and vulnerability. Both vulnerability and poverty have in general declined in Bangladesh. Yet, 60% of rural households
adopted a coping of one type or another and about half of rural households were both vulnerable as well as found to adopt any coping mechanism
during the 1998 flood. Household-level panel data analysis confirms that the flood reduced both consumption and asset, and forced many households
to adopt some coping mechanisms to mitigate the adverse effects of flood. Consequently, natural disaster such as flooding increases households
vulnerability to poverty. However, post-flood bumper crop production and operation of targeted programs such as microfinance helped compensate
the losses of flood.
JEL classification: I31

Keywords: Flood; Natural disaster; Coping; Vulnerability; Microcredit impacts

1. Introduction Bangladesh, and the role of government and nongovernment

This article addresses poverty, vulnerability, and coping of
rural households, and demonstrates from examples of the 1998
flood in Bangladesh how flood affects these outcomes and how
institutions enhance households coping ability to reduce the
adverse effects of flooding. Poverty is defined as a situation in
which households cannot maintain a living standard defined by
the society as a threshold for not being poor. Vulnerability, in
contrast, is defined as the risk or probability that a household
falls into poverty. While poverty is ex post, vulnerability is ex
ante. Households are also vulnerable to idiosyncratic shocks,
such as accident, floods, and other natural and man-made (such
as war) disasters, and consequently, vulnerable to poverty. In
every society, households resort to strategies, what we call cop-
ing mechanisms, to mitigate the adverse effects of shocks that
affect the probability of being poor or vulnerable. Some house-
holds have a better ability to cope with shocks than others.
Households coping or response to a shock depends on local
conditions as well as human and physical endowments. Institu-
tions influence local conditions and thus shape up a households
coping, and hence, vulnerability, and poverty.
The purpose of this article is to identify what coping mech-
anisms households adopted to cope with the flood of 1998 in
Corresponding author.
E-mail address: skhandker@worldbank.org (S.R. Khandker).
institutions, if any, in shaping such coping behavior. The ar-
ticle then proceeds to determine the role of flood and public
programs and policies in coping strategies during flood. It esti-
mates the extent of vulnerability to poverty (ex ante poverty) and
compares this with actual poverty (ex post poverty). The arti-
cle examines how many flood-affected households that adopted
some coping measures were vulnerable (ex ante poor) and vice
versa. The purpose is to find the extent of correlation among
vulnerability, poverty, and coping, although they are jointly de-
termined. The article then estimates the net effect of flooding
and public policies and programs on these outcomes using pre-
and post-flood level household survey data from both flood-
affected and unaffected villages. In doing so, it controls for the
potential bias due to the unobserved ability of households and
communities to withstand flooding and similar crisis.
The articles main conclusion is that not all poor households
are vulnerable and thus did not need any coping during flood,
and that public institutions, including microfinance institutions,
play an important role in mitigating the adverse impacts of
flooding on household welfare.
The article is organized as follows. Section 2 reviews the lit-
erature on the consequences of 1998 flood in Bangladesh. Sec-
tion 3 discusses the data, and assesses the extent of the damage
caused by the 1998 flood. Section 4 examines the coping mech-
anisms rural households adopted during the 1998 flood. Section
5 defines and estimates vulnerability and attempts to quantify

c 2007 International Association of Agricultural Economists
170 S.R. Khandker / Agricultural Economics 36 (2007) 169180

the extent of vulnerability among households who adopted any mentioned about the 1988 flood, Although rice paddies are
coping during the flood of 1998. Section 6 estimates the net im- under several meters of water and the precious jute crop badly
pact of the flood on consumption, assets, and coping strategies damaged, morale among beleaguered Bengalis seem surpris-
to determine if the flood, after controlling for the role of institu- ingly high (p. 1).
tions and other factors, has any effect, net of time, on household A number of organizations, both existing and developed over
welfare. The concluding section summarizes the results. the years [including the Dhaka-based United Nations Disaster
Management Team (UN-DMT), the Geneva-based UN Office
for Coordination of Humanitarian Affairs (OCHA), and the
2. Flood and its impact in Bangladesh: what do we already
Flood Forecasting and Warning Center (FFWC)], educate and
know?
prepare the potential victims for impending crises, and thus
have contributed toward that resilience. Apart from the peo-
In 1998, more than two-thirds of Bangladesh was inundated
ples resilience, recovery from the miseries of the 1998 flood
for about three months. This created the impression of severe
was led by bumper crop production. The flood itself probably
havoc in the media and worsened peoples perception about
contributed to this high production by improving the moisture
the extent of damage to the economy and, in particular, to
condition and fertility of the soil with sediment deposits. High
the ability of the poor to withstand the crisis. Yet the post-
crop production in turn helped reduce the severity of the floods
flood assessment suggests that nothing catastrophic happened
after-effects.
and that economic recovery was spectacular, due in part to the
The rural households withstood the 1998 flood also partly
bumper production of Boro paddy and a number of austerity
because of their own ability to cope with such a disaster and the
and other measures of the government, donors [including the
governments ability to manage such a crisis. It is claimed that
World Banks Emergency Flood Recovery Project (EFREP)]
the situation was controlled largely by the countrys massive
and nongovernmental organizations (NGOs) to cope with the
disaster-management facilities created and supported after the
flood. The growth of overall gross domestic product (GDP)
1988 flood. Governments rapid deployment and better man-
was only slightly less after the 1998 flood: it was 5.6% in 1998
agement of the existing targeted safety net programssuch as
compared to 5.9% in 1997.
the Vulnerable Group Feeding (VGF), Vulnerable Group De-
However, floods are not new in Bangladesh. 1 Historical
velopment (VGD), and Food for Work (FFW) including emer-
records show that before the 1998 flood, there were at least
gency food help and support of community-based microcre-
four major floods in the 20th century that affected at least one-
dit and other organizationshelped prevent massive starvation
third of the countryin 1955, 1974, 1987, and 1988. All of
and flood-related casualties, child malnutrition, and a possible
these floods caused huge property damage and casualties. In
outbreak of diseases following the flood. However, the govern-
particular, during the 1974 flood, more than 2,000 people died
ment can still do more by following successful strategies from
because of the flood alone, and the famine that followed the
other countries that are subject to frequent similar disasters.
flood claimed more than 30,000 lives. The flood of 1988 was
In Vietnam, people are accustomed to frequent flooding and
even more severe and the number of deaths caused directly by
tidal storms and they have developed certain measures over the
the flood was higher than that during 1974, but the subsequent
years that helped them handle these crises better, for example,
famine was avoided.
the creation of special emergency funds, better handling and
The most severe flood (in terms of area affected) in the his-
distribution of disaster relief, improved forecasting and warn-
tory of Bangladesh was probably the one in 1998, affecting
ing systems, and so on (Benson, 1997).
two-thirds of the country. All sectorscrop, livestock, poultry,
A number of microstudies including an IFPRI study carried
fisheries, and rural infrastructurewere severely damaged. Ac-
out during and after the flood show that the income, consump-
cording to one estimate, in less than three months, direct damage
tion, and other losses were minimal and that households man-
due to the flood was estimated at US$2 billion, which was al-
aged to cope with such losses with help from the government
most 9% of the countrys GDP (Nayar and Faisal, 1999), but
and other agencies, including NGOs (e.g., del Ninno et al.,
the people of Bangladesh fared better this time than in 1988, as
2001, 2003, 2004; Dorosh et al., 2004). Although these studies
the number of deaths was much lower. There was hardship and
have documented quite well the extent of damage and sources
suffering, no doubt, but there was no mass migration or famine.
of support that helped households to cope with flood, the net
Kiene (2004) points out, A quarter-century of adjustments to-
effects of flood on household welfare based on counterfactuals
ward a more rational policy mix, free political expression, a
(i.e., pre- and post-flood period, and in and outside of flood-
more liberal trade regime, and a flexible and effective disaster
effected areas) were not measured. It is not clear how large the
response and mitigation certainly laid the foundation for this
net effect of flood on household outcomes was, nor did these
success story (p. 197). In addition to policy improvements,
studies assess properly the role of institutions and their policies.
peoples resilience has grown over the years, as Johnson (1988)
Just from the analysis of outcomes during or after the flood, we
1 A serious flood struck Bangladesh recently during the month of July 2004.
cannot assess whether it is governments crisis management
According to available press information, this flood was more severe than the ability or a households coping ability that helped reduce the
1998 flood. vulnerability of the poor.
 S.R. Khandker / Agricultural Economics 36 (2007) 169180
This article uses an econometric technique to estimate the net
effect of the flood on household welfare. It also examines the
role of alternative policies and programs needed to mitigate the
adverse effects of the flood. The article examines borrowing and
nonborrowing coping mechanisms, and attempts to shed light
on their roles in mitigating welfare losses due to the flood. It
links vulnerability to coping in a framework that demonstrates
that households that adopted coping are overwhelmingly vul-
nerable and, hence, poor. However, households that are poor
and vulnerable do not necessarily require coping during flood.
This means that the policy framework has to be tailored to the
specific needs of an extremely vulnerable group of households
that are both poor and vulnerable, and require assistance to cope
with flooding or any other crisis.
3. Data and its characteristics
The study relies on data on the flood and related variables
from the household and village survey carried out after the
1998 flood in 104 villages of 32 thanas (districts) covering
about 2,600 households. The survey is a follow-up of a study
carried out in 1991/92 to study the role of the Grameen Bank
and other microcredit programs in 87 villages of 29 thanas
in rural Bangladesh. Three villages were selected from each
of the thanas and roughly 20 households were picked from
each village giving a total of 1,798 households. The household
survey was conducted three times during 1991/92, based on the
three cropping seasons: round 1 during Aman rice (November
February), round 2 during Boro rice (MarchJune), and round 3
during Aus rice (JulyOctober). However, because of attrition,
only 1,769 households were available in the third round.
These households from 87 villages of 29 thanas were revis-
ited in 1998/99. Unlike the 1991/92 survey, these households
were revisited only once this time. However, among the 1,769
households surveyed in 1991/92 survey, 131 could not be re-
traced in 1998/99, leaving 1,638 households available for the
resurvey. Resurvey included new households from old villages
and newly included villages. Three new nontarget households
were randomly selected from each of the existing 87 villages.
Also, three new thanas were randomly selected from the south-
ern and southeastern regions that were excluded in first round
survey because of the cyclone in 1991/92. Three villages were
drawn randomly from each of these new thanas, making nine
additional villages in all. Altogether, 2,599 households were
surveyed in 1998/99 out of which 2,226 were from old villages
and 373 are from new villages. Among the 2,226 households
in old villages, 279 households are new sampled households
and 1,947 are old panel households surveyed in 1991/92. The
number of panel households surveyed in 1998/99 (1,947 house-
holds) is larger than the number surveyed in 1991/92 (1,638
households), because some old households split after the first
survey to form more than one new households. As a whole,
microcredit program membership among the panel households
171
Table 1
Village distribution and proportion of villages receiving government help dur-
ing the flood (%) (N = 104)
Type of villages Village distribution by Percentage of villages
the extent of the flood that received govt. help
1. Unaffected villages 41.4 N/A
2. Affected villages 58.6 88.5
Partly affected 39.4 85.4
Completely affected 19.2 95.0
increased from 25.8% in 1991/92 to 52.6% in 1998/99. 2 Also,
the target households increased from 63.8% to 72.7% of sample
households over this period. On the other hand, nonparticipants
dropped during the same period from 38% to 20.1% among
target households.
Since not all villages were subject to flood in 1998, the data
provides a quasi-experimental counterfactual, whereby a com-
parison of 1991/92 and 1998/99 household and community
surveys provides an opportunity to examine the flood-related
issues. The survey strategy was two-fold: (a) carry out commu-
nity surveys in both flood-affected and unaffected villages, and
(b) carry out household-level surveys in both flood-affected and
unaffected villages. 3 This strategy helped collate information
on household coping mechanisms in the event of a crisis, the
extent of damage of the flood, and the extent of recovery after
the flood. With an appropriate technique, it will be possible to
estimate the net impact of the flood on household welfare and
to learn how rural households coped with this natural disaster,
and whether public policies played any role in the coping of
rural households.
The flood modules of the data (village- and household-level)
provide information on the extent of the flood, its impact on
household-level outcomes, and the relief efforts by the govern-
ment and NGOs. Table 1 shows the extent of the flood in 1998
in the 104 surveyed villages. While 41% of villages were not
affected at all, about 40% were partly affected and 19% were
completely affected. The government relief efforts were told to
cover almost 90% of the affected villages.
When a flood strikes a village, economic activities are seri-
ously affected, which causes an immediate toll in labor markets
and the daily wage rate subsequently declines. Table 2 provides
the distribution of male, female, and child wages for both agri-
culture and nonagriculture before, during, and after the flood.
The wage of adult male labor fell by 10% in agriculture sec-
tor compared with 13% in nonagriculture. However, the labor
market rebounded quickly in the post-flood period, as the wage
level surpassed the pre-flood wages.
2 According to a recent PKSF article (June 2005), 13.5 million rural house-
holds are members of microcredit programs, out of an estimated 26 million
households, amounting to a participation rate of over 50% (PKSF, 2005). In
another study, Hulme and Moore (2005) reported number of active microcredit
borrowers to be 20+ million. The findings of these two studies are consistent
with that of our data.
3 Of course, the flood-specific questionnaires were administered only for
households in the flood-affected areas.
172 S.R. Khandker / Agricultural Economics 36 (2007) 169180

Table 2
Variation in wages (taka/day) during the flood (N = 61)

Sector Male Female Child

Wage during Wage during Wage during Wage during Wage during Wage during Wage during Wage during Wage during
flood (OctNov OctNov the survey flood (OctNov OctNov the survey flood (OctNov OctNov the survey
1998) 1997 (May 1999) 1998) 1997 (May 1999) 1998) 1997 (May 1999)

Agricultural sector 50.5 56.2 65.5 29.7 35.0 41.1 26.1 29.2 35.4
Nonagricultural sector 59.8 69.1 82.6 31.6 36.4 42.1 28.0 31.6 38.1

Note: Variations of wages among all three periods are statistically significant at 5% level.

Table 3
Extent of property damage in villages during the flood (%) (N = 61)

Village category by Livestock damage Livestock damage Poultry damage Crop damage Proportion completely Proportion of partly
extent of flood (cows/buffalos) (goats/sheep) damaged housing damaged housing

Partly affected villages 46.3 53.7 87.8 67.5 7.2 20.4

Completely affected villages 85.0 90.0 90.0 89.5 13.6 40.8
All affected villages 59.0 65.6 88.5 74.6 9.3 27.1

Note: A partly damaged housing is livable (needs minor repair), while a completely damaged housing is not livable without being rebuilt.

Table 3 shows the extent of flood damage in the villages. Table 4

The households in completely affected villages suffered very Distribution of households that received help during the flood by source and
by the extent of flood damage (N = 1,516)
badly in terms of crop, livestock, and poultry damage. They
lost almost 90% of these assets. Households in partly affected Households Households Households
areas fared better although they also incurred significant loss. in partly in completely in all
affected affected affected
Almost 14% of the houses in completely affected villages were villages villages villages
rendered unlivable, while 7% of the houses in partly affected
villages were completely destroyed. Households grouped by help-receiving status
Received help 20.1 36.6 25.2
Did not receive any help 56.7 40.1 51.6
Did not need any help 23.1 23.3 23.2
4. Coping strategies during flood Households grouped by sources of major help
Government emergency relief 39.7 45.3 42.2
Accessing government and nongovernment aid during a crisis (food and nonfood)
NGOs 9.0 14.3 11.4
such as flooding is clearly a coping mechanism of a household
VGF, VGD, and FFW 38.0 21.4 30.6
in rural Bangladesh. Similarly, adopting a strategy such as skip- Relatives and other personal 11.5 15.9 13.4
ping a meal during a flood reveals a vulnerability of a household sources
exposed to a shock. Households may also borrow to cope with Other nongovernment sources 1.8 3.1 2.4
a flood. Based on a study conducted immediately after the 1988 VGF, vulnerable group feeding; VGD, vulnerable group development;
flood, Haque and Zaman (1993) found that more than 71% of and FFW, food-for-work.
the households sold their land, livestock, or belongings to re-
duce the losses due to the flood, and many moved their housing
structures, livestock, and family members to safer places. An-
other study found that the three major coping strategies adopted (VGF), Vulnerable Group Development (VGD), and Food-for-
during the 1998 flood were reducing expenditure, selling assets, Work (FFW). 4 It seems that these programs focused more on
and borrowing, with borrowing being the most important (del partly affected areas than on completely affected areas. The
Ninno et al., 2003). next important sources of help were relatives and other per-
Table 4 presents the distribution of help sources that the sonal sources (13.4%), and NGOs (11%).
households benefited from in flood-affected villages. In all such
villages, some 23% of households did not need any help. Only
4 These three programs are funded by foreign grants and operated by the gov-
about 25% received some kind of help. That means, an over-
ernment. They target mostly the extremely poor households who are not covered
whelming 50% of households who needed help did not obtain
by the NGO-based microcredit programs. Although they operate throughout the
any during the crisis. Now, among those who received help, year, their intensity increases during the flood. The VGF program is in opera-
42% specified the government as the major sources, while 31% tion every year, but its coverage is usually much smaller than those of NGOs
benefited from programs such as Vulnerable Group Feeding because of lack of political will and donor support.
 S.R. Khandker / Agricultural Economics 36 (2007) 169180 173

Table 5 Table 7
Share of major source of help received by household by landholding (N = Distribution of households by potential source of funds in the event of an
1,516) emergency (N = 1,516)

Households grouped Household Household distribution Proportion of households that

by landholding status distribution grouped by help sources
Can raise money from multiple sources 77.1
Government NGOs VGF, VGD, Can raise money from single source only 14.0
and FFW Cannot raise money 8.9
Landless 12.7 16.4 13.8 7.0 Distribution of households by the major sources
Smallholders 50.3 66.4 37.7 82.7 that they can raise money from
Medium to large holders 37.0 17.2 48.5 10.3
Multiple source Single source Any source
users users users

Formal institutions 2.0 0.8 1.8

NGOs 9.4 3.0 8.4
As shown by Table 5, landless households were well targeted Immediate relatives 33.0 18.8 30.8
by the government, and NGOs based on their population distri- In-laws 13.1 6.2 12.0
bution. Smallholders benefited most by government and VGD, Other relatives 15.3 4.9 13.8
VGF, and FFW programs, whereas medium to large holders Friends and neighbors 16.2 39.4 19.7
Informal lenders 6.9 21.1 9.1
were mostly helped by NGOs. While smallholders make up Selling goods and services 4.0 4.3 4.1
50% of all households, they reaped 66% and 82% of the funds Own savings 0.1 1.5 0.3
from the government and aid programs, respectively.
During the flood of 1998, many households were seen to
adopt measures such as skipping meals, making distress sales as a coping mechanism is to ask how many could generate 500
of assets or migrating away from villages. Table 6 shows the taka (Tk) in the event of an emergency. 5
extent of such coping. Ten percent of the households made The responses to this question are summarized in Table 7.
distress sales during the flood, and nonland asset sale was the Only 9% of the households cannot raise money at all, while
most dominant form of distress sale. However, the most com- 14% can raise it just from one source and 77% can do it from
mon coping strategy adopted by the households was skipping multiple sources. An important feature of these sources is that
mealsalmost 36% of the households skipped one or two meals they are predominantly informal. For example, for multiple
a day during the flood. Overall, 41% households adopted one source users, immediate relatives are the major providers of 500
coping strategy (i.e., nonborrowing) or another during the 1998 Tk, while single source users mentioned friends and neighbors
flood. as the most important source. The main difference between
Households were also found to use borrowing to cope with these two groups of households lies in their reliance on formal
flood, but households borrow year round for other purposes and semiformal sources. While multiple source users rely more
and it is therefore necessary to determine what proportion of on formal sources and NGOs than on informal lenders, single
borrowed funds was intended for extra needs during the flood. source users do not have that flexibility. In fact, informal lenders
One way to guess a households willingness to use borrowing are the second most important source for single source users.
Another interesting aspect is that very few households have
enough savings.
Table 6 Now consider what actually happened to the level and in-
Proportion of households resorting to coping mechanism during the 1998 flood cidence of borrowing during the months of flooding vis-a-vis
(N = 1,516) the other months of 1997 and 1998. Although the area flooded
Households by type of Households Households Households
peaked in August of 1998, most of the affected population suf-
coping mechanism in partly in completely in all fered for the whole year of 1998 because of apprehension about
affected affected affected the flood even before it occured, actual damage during the flood
villages villages villages and post-flood calamities after the water subsided.
Household made distress sale 9.4 12.4 10.3 This adversity can be captured by a households increased
Advance labor sale 1.3 0.6 1.0 borrowing in 1998. Compared with 1997, 1998 saw a steady
Advance crop sale 0.4 0.2 0.3 increase in household borrowing for all months from all pos-
Land sale 0.9 1.2 1.0 sible sources as depicted in Fig. 1. Although the borrowing
Other asset sale 6.9 10.8 8.1
Household skipped meals 35.6 35.7 35.7
differential seems to decrease in the month of June, it went
Household migrated to 2.7 5.2 3.5 up during the later half of the year. On average, households
outside the village
Household adopted any 41.2 41.6 41.4
5 The Taka is the official currency of Bangladesh. 500 Taka were equivalent
coping mechanism
to US$ 9 during the time of the 1998 flood.
174 S.R. Khandker / Agricultural Economics 36 (2007) 169180

1997 1998 Table 8

Distribution of average household monthly loan by source (taka)
1,000
Month of loan 1997 1998
Average monthly loan (Taka)

750 Microcredit Formal Informal Micro- Formal Informal

credit

500 January 401.1 35.4 55.3 493.3 21.3 202.9

(82.5) (7.2) (11.3) (68.8) (3.0) (28.3)
February 399.6 6.5 110.1 501.3 10.3 128.4
250 (77.4) (1.3) (21.3) (78.3) (1.6) (20.1)
March 438.4 6.8 80.2 566.3 70.0 166.8
(83.4) (1.3) (15.3) (70.5) (8.7) (20.8)
0
April 318.6 0 45.1 420.1 4.7 291.0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
(74.2) (0) (25.8) (58.7) (0.7) (40.7)
Month
May 338.9 10.6 45.1 444.8 68.5 123.9
(85.9) (2.7) (11.4) (69.8) (10.8) (19.4)
Fig. 1. Monthly variation of loan by year. June 470.1 67.5 276.1 597.3 204.4 183.9
(57.8) (8.3) (33.9) (60.6) (20.7) (18.7)
July 407.0 3.1 45.4 410.0 127.0 156.3
monthly borrowing increased about 50% (from 487 Tk to 727 (89.4) (0.7) (9.9) (59.1) (18.3) (22.5)
Tk) from 1997 to 1998. August 334.2 9.3 42.0 410.0 19.5 186.7
It is also interesting to investigate whether households (86.7) (2.4) (10.9) (66.5) (3.2) (30.3)
borrowing patternsin addition to the quantities borrowed September 334.6 0 13.7 375.1 23.3 80.6
(96.1) (0) (3.9) (78.3) (4.9) (16.8)
changed during the flood year. Table 8 presents the distribution
October 394.9 17.7 31.1 543.5 70.3 204.6
of households monthly loans by source type for 1997 and (89.0) (4.0) (7.0) (66.4) (8.6) (25.0)
1998. The major source of loans for most of these poor house- November 384.0 20.5 23.6 524.2 43.4 211.9
holds is microcredit in both years, and loans from all three (89.7) (4.8) (5.5) (67.2) (5.6) (27.2)
sourcesmicrocredit, formal, and informalincreased in real December 471.8 74.6 70.0 494.2 163.4 182.9
(76.5) (12.1) (11.3) (58.8) (19.4) (21.8)
terms from 1997 to 1998. There is, however, a noticeable shift in
All months 391.1 21.0 75.3 481.7 68.8 176.6
the loan portfolio of the borrowers from 1997 to 1998. The share (82.3) (3.7) (14.0) (66.9) (8.8) (24.3)
of microcredit loans dropped significantly from 82% to 67%.
This reduction in the share of microcredit was compensated by Note: 1. Figures in parentheses are share of each source.
2. Monetary figures are expressed in real terms (1997 = 100)
increases in formal and especially informal sector loans. Mi-
crocredit programs and formal sources, both having their own
institutional limitations, could not increase at the same pace
Table 9
as the demand for hard cash during the crisis. Particularly, the Share of vulnerable households in different categories of microcredit program par-
microcredit programs, like their client households, suffered in ticipation and flood status
a number ways, including income loss from nonpayment of
Flood-affected Villages not
borrower loans, shortage to cash to issue new loans, unavail- Villages affected by flood All villages
Households
ability of grants, client drop-outs, etc. As a result, their capital
microcredit program 1991/92 1998/99 1991/92 1998/99 1991/92 1998/99
base for loan disbursement shrank (Nayar and Faisal, 1999). 6 participation status
Hence, many households had to resort to informal sources for
Microcredit program 90.5 52.6 81.4 53.6 86.4 53.1
fast access to money. These informal sources were mostly participants
friends and relatives, followed by landlords, input suppliers, Target nonparticipants 95.2 67.8 91.5 79.1 93.5 72.3
employers, and local businessmen. All target households 92.3 56.1 85.4 58.4 89.2 57.1
Nontarget households 59.1 23.8 60.9 17.2 59.9 20.7
Increased borrowing during the months of the flood means
All households 81.3 47.1 77.5 46.4 79.6 46.8
that some households must have used borrowing as a coping All households 83.3 61.3 82.9 71.5 83.1 65.8
mechanism to reduce the adversity of flood. But how to deter- moderate poverty
mine which household used borrowing to coping with the flood

6 Microcredit programs are not designed specifically with disaster manage-

ment in mind. They are not charity organizations and their viability depends on
sound repayment of loan disbursements. When floods or any such calamities hit
these households, it is the loan repayment that is most often adversely affected,
which in turn affects the bottom line of the microcredit programs. Nevertheless,
they have adapted to cope with these disasters in more than one ways, for ex-
ample, by disbursing emergency loans, putting moratorium on existing loans,
etc. Table 4 shows NGOs come in fourth place out of five helping sources that
the households considered important during the flood.
among all the households who borrowed in flood-affected vil-
lages? This requires further analysis of the borrowing data. The
following procedure is followed here. First, the growth pattern
of households borrowing over the years preceding the flood
is observed. Second, using this growth pattern, any unusual
increase in the borrowing amount during the months of flood
is determined. Households that resorted to increased borrowing
 S.R. Khandker / Agricultural Economics 36 (2007) 169180 175

Table 10 household, and V i is the vulnerability index of the ith house-

Extent of coping among households vulnerable in 1991/92 hold. The larger the value of V i , the greater the vulnerability
Households Proportion Proportion of 1998 households of the ith household. One way to estimate vulnerability is to
of 1991/92 that adopted coping measures estimate a households future consumption conditional on its
vulnerable during the 1998 flood current characteristics. If X i is vector of household characteris-
Nonborrowing Borrowing Any type tics such as age and education of the household head and spouse,
coping coping of coping and households locational characteristics, we can generate the
Microcredit program 89.1 45.9 41.9 68.1 consumption of a household, i, by a stochastic model:
participants (44.0) (35.9) (61.5)
Target nonparticipants 91.1 55.0 15.8 63.4 ln(cit ) = Xit + it , (2)
(53.0) (15.3) (60.9)
All target households 89.5 47.9 36.2 67.1 where is a vector of parameters to be estimated, and is a
(46.0) (31.4) (61.4)
stochastic error term with zero mean and variance, 2i , which
Nontarget households 60.4 32.1 23.9 48.4
(28.9) (12.6) (34.6) varies across households. It is assumed that remains the same
All households 80.1 41.8 31.4 60.0 over time, implying that uncertainty in consumption depends
(39.4) (25.3) (52.2) on idiosyncratic shocks, , which the household will experience
Observations 1,086 1,086 1,086 1,086 in future.
With the assumption that variance of the logarithm of con-
Note: The sample 1,086 is a restricted sample of households from the
flood-affected villages only. Figures in parentheses are shares of 1991 sumption varies, we also assume that the variance depends on
vulnerable households. the X, i.e.,

it2 = Xit , (3)

that cannot be explained by their average borrowing patterns are which can be consistently estimated by the ordinary least
assumed to have adopted borrowing as a coping mechanism. squares (OLS) method applied to
In flood-affected villages, roughly 65% of households bor-
rowed from any source in 1998. Of these, 47% used borrowing eit2 = Xit + it , (4)
as a coping strategy to cope with the flood (not shown in the ta-

ble). Overall, 31% of rural households (as reported in Table 10) where eit = ln(cit ) Xit ;

used borrowing to cope with the adverse effects of the flood, being the estimator of obtained from Eq. (2).

compared with 42% who adopted other (nonborrowing) means If is an estimate of from Eq. (4), the consistent estimator
of coping. of 2i is given by:

it2 = Xit . (5)
5. Poverty, vulnerability, and coping strategies
For large sample sizes, one can argue that ln(c it ) is normally
A household that is exposed to a crisis adopts a mitigating  
distributed with mean Xi and variance Xit , which gives rise
measure when its economic situation is not just adversely af- to the following:
fected but its existing equilibrium is also disrupted to an extent,
which warrants a coping mechanism. One can argue that house- ln(cit ) Xit


holds that resort to any type of coping are likely to be vulner- it =
, (6)

able. How do we define vulnerability? Following the literature Xit
(Chaudhuri, 2003; Chaudhuri et al., 2002; Moser, 1998; Pritch-
ett et al., 2000), we can define vulnerability as the probability which is distributed as asymptotically normal with zero mean
of being poor in the future. Does this mean that households that and unit variance.
adopted coping during the flood were vulnerable to poverty? The vulnerability index can be written as:
This section attempts to determine the extent of coping among
the vulnerable and vice versa. Vit = Pr[cit < zit ] = Pr[ln(cit ) < ln(zit )], (7)
Vulnerability is defined as the probability that a household
with a per capita consumption of c i will remain poor or fall into which in view of the above gives an estimate of V i as:
poverty:  
ln(zit ) Xit ln(zit ) Xit
ti = Pr[it <
] = it [


], (8)
Vi = Pr(ci < zi ), (1) 
Xit

Xit

where z i is the per capita poverty line of the ith household where it () is the cumulative density of the standard normal
that takes account of household needs and prices faced by the for the ith household in period t.
176 S.R. Khandker / Agricultural Economics 36 (2007) 169180
We can calculate the vulnerability index of a household based
on Eq. (8), which predicts a households probability of being
poor in future (i.e., ex ante poverty) based on current charac-
teristics. 7 The index varies from 0 to 1. Households with V i =
0 are not vulnerable at all, while those with V i = 1 are most
vulnerable.
Knowing which households are vulnerable is very useful for
targeting and policy purposes, but the vulnerability index does
not clearly say which households are actually vulnerable and
which are not, only that some households are more vulnerable
than others. Identifying vulnerable households from the vul-
nerability index requires some judgment. The option followed
here is to introduce a cut-off point at the sample mean value
of the distribution when the distribution varies widely between
the two extremes (0 and 1). Thus, we define a household as
vulnerable if its vulnerability index is higher than the cut-off
point (sample mean) of 0.51 and nonvulnerable otherwise.
Table 9 shows the results for each year by the flood status
of the village and the households microcredit program partic-
ipation status. 8 Since unobserved bias at the household-level
cannot be handled in cross-sectional analysis, panel analysis is
used to calculate the extent of vulnerability among these differ-
ent types of households in both years. For comparison purpose,
we also present the extent of (moderate) poverty for both years.
We find a decline in vulnerability as well as poverty over time.
For example, while overall 79.6% of households were vulnera-
ble in 1991/92, this percentage dropped to 46.8% in 1998/99. In
contrast, poverty declined form 83.1% to 65.8% during the same
period in these villages. 9 Table 9 also shows that household vul-
nerability decreased more for microcredit program participants
than for nonparticipants between 1991/92 and 1998/99. This
finding perhaps reflects the benefits of microcredit programs.
Households were slightly more vulnerable in flood-affected
villages than in nonaffected villages. In 1991/92, 81.3% of
households were vulnerable in flood-affected villages, while
77.5% were vulnerable in flood-free villages. In 1998/99, even
after the flood, the vulnerability situation improved substan-
7 We first regress household per capita consumption expenditure (log form)
against household (heads age, sex, education, land assets, and so on) and village
characteristics (electricity, extent of irrigation, road condition, etc.). Both the
log consumption and the residual are predicted. Predicted log consumption and
squared residual are used to calculate the right hand side component of Eq. (6),
and then we compute its cumulative standard normal density, which gives us
the vulnerability index.
8 Households are classified by status of participation in a microcredit program.
Households holding up to 50 decimals of land are eligible to participate in a
microcredit program, and these households are treated as target households.
Among target households, not all of them participate in a program. Nontarget
households are those that do not qualify for microfinance programs because of
landholding of more than 50 decimals.
9 Vulnerability (which is the predicted poverty) is found to be consistently
smaller than observed poverty (Table 9). This is usually the case for a two time-
point panel survey, when the distribution of actual values, which has longer
tails, has a median below the 50th percentile. This happens because, as our data
shows, the predicted values have the tendency of being drawn by the tails at the
other end of the distribution. A similar pattern was found in a recent study of
vulnerability of Pakistani households (del Ninno et al., 2006).
tially for all types of households in both flood-affected and
nonaffected villages. The extent of decline in vulnerability was,
however, slightly higher in flood-affected than nonaffected vil-
lages. This perhaps shows the benefits of rapid intervention by
the government and aid agencies, plus the bumper production
of crops.
Limiting the analysis of vulnerability to only the flood-
affected villages, we see how many vulnerable (those who are
likely to be poor in the future) actually used coping during flood
of 1998 or how many households that used coping in 1998
were actually vulnerable in 1991/92. As indicated earlier, cop-
ing implies either nonborrowing or borrowing or both methods
to mitigate the adversity of flood. Table 10 shows this distri-
bution. Overall, 80% of households in flood-affected villages
were vulnerable in 1991/92. This share does not vary much be-
tween target participants and nonparticipants or between target
and nontarget households. More households adopted nonbor-
rowing than borrowing as coping, which makes sense as not
many people may have access to fund. This difference is more
pronounced between the microcredit participants and the coun-
terpart target nonparticipants.
The difference between nonborrowing and borrowing coping
mechanisms is small for microcredit participants (46% against
42%), while it is quite large for target nonparticipants (55%
vs. 16%). Overall, 42% of households adopted nonborrowing
coping, while 31% adopted borrowing as a coping mechanism.
The number of households that adopted some form of coping
is not exactly the sum total of both types of coping, because
some households engage in both forms. In aggregate, 60% of
the households in flood-affected areas adopted one coping or
another, and some 52% of the households were both vulnerable
of 1991 and used some form of coping during the flood of 1998.
How many of the households that adopted coping (in the
1998 flood) were in fact vulnerable in 1991? This can be de-
rived by dividing the number in parentheses by the number
outside parenthesis in the coping columns of Table 10. Over-
all, 87% of the coping households were vulnerable of 1991.
It is obvious that an overwhelming number of households that
adopted a coping mechanism were vulnerable in 1991/92, and
only a small fraction were nonvulnerable. Thus, households
that are vulnerable to poverty are more likely to be vulnerable
to flooding or similar natural disasters.
6. Effects of flooding on household welfare and coping
As we indicated earlier, even if the flood caused distress and
forced 60% of all households to adopt coping measures, the
economy made a speedy recovery due to bumper crop produc-
tion, and government and nongovernment interventions. We
would then expect that economic losses in flood-affected areas
might have been offset by these events so that an analysis of
household outcomes before and after the flood in flood-affected
areas would show changes in outcomes that are either equal or
greater than changes in outcomes in unaffected areas.
 S.R. Khandker / Agricultural Economics 36 (2007) 169180 177

Table 11A
Summary statistics of outcome variables by flood status

Outcome variables Flood-affected villages Villages not affected by the flood All villages
1991/92 1998/99 1991/92 1998/99 1991/92 1998/99

Per capita yearly total expenditure (taka) 4,425.5 6,130.3 4,485.7 5,412.8 4,452.4 5,810.1
(2,683.0) (4,541.7) (2,388.1) (4,424.4) (2,554.7) (4,502.5)
Household nonland asset (taka) 28,394.9 40,076.5 29,007.3 35,926.6 28,668.9 38,224.7
(60,006.4) (89,884.9) (53,278.7) (66,049.0) (57,078.8) (80,133.2)
Household borrowing 2,450.7 9,884.6 2,291.4 8,018.4 2,379.4 9,051.9
(5,975.9) (19,251.7) (6,417.9) (16,220.9) (6,176.1) (17,981.2)
Observations 907 907 731 731 1,638 1,638

Note: Figures in parentheses are standard deviations

Table 11B This section provides econometric estimates of the impact

Summary statistics of selected explanatory variables (N = 907) of flood net of time and other possible factors, including area
Variables 1991/92 1998/99 Whole and household unobserved characteristics that affect these out-
sample comes. Identifying the flood impact may not be a problem if
Flood duration in the village (days) 0 51.92 26.02 flood is a random event and not specific to a village or to a house-
(27.42) (27.4) hold. However, the flood did not affect all villages equally in
Household cumulative 2,450.7 9,884.6 6,175.1 the sense that its effects depend on unobserved village hetero-
borrowing (taka) (5,975.9) (19,251.7) (14,738.3) geneity. This is a potential source of bias if we take the flood
Highest grade completed by 2.95 2.47 2.71
as given. The second source of bias is the unobserved house-
household head (years) (3.76) (3.64) (3.71)
Sex of household head 0.94 0.85 0.89 hold heterogeneity in the sense that even if the flood affects a
(male = 1, female = 0) (0.23) (0.36) (0.31) village, it does not affect all households equally, since different
Age of household head (years) 41.26 48.07 44.67 households have different ways to cope with the flood. With
(13.12) (13.13) (13.56) the availability of panel data, we can resolve heterogeneity in
Maximum education by household 3.45 4.54 4.00
the estimation of household welfare including coping by us-
male (years) (3.96) (4.63) (4.35)
Maximum education by household 1.89 3.03 2.46 ing household fixed-effects the following way. 10 Assume that
female (years) (3.17) (3.81) (3.56) household coping from all sources (C ijt ) of the ith household
Household land asset (decimals) 122.11 108.85 115.47 living in the jth village, conditional on the village flood duration
(262.78) (188.09) (228.47) (D jt ) at time t, is:
If village is accessible by 0.86 0.92 0.89
road whole year (0.27) (0.35) (0.31)
Cijt = b T + b Xijt + b Vijt + b Djt + bj + ib + ijt
b
, (9)
Proportion of village land irrigated 0.43 0.59 0.51
(0.31) (0.32) (0.32)
If village has electricity 0.48 0.54 0.51 where b measures the effect of time on coping, b measures
(0.50) (0.50) (0.50) the effect of flood on coping, and the other variables are as
Note: Figures in parentheses are standard deviations.
defined earlier.
We are also interested in identifying the impacts of the flood
and coping on household outcomes such as per capita consump-
tion, and asset holding. We write the household outcome equa-
Indeed, as Table 11A suggests, even though per capita real tion similar to the borrowing equation, conditional on household
consumption has increased both in flood-affected and nonaf- coping:
fected villages over the 1991/921998/99 period, the increase Yijt = c T + c Xijt + c Vijt + c Djt + c Cijt
is higher in flood affected villages (39%) than in nonaffected
villages (21%). The same is also true for household nonland + cj + ic + ijt
c
, (10)
assets in real terms: a 41% increase in flood-affected villages
versus a 24% increase in nonaffected villages. 10 It is true that time-variant unobservable characteristics of the households
Does this mean that households are better off due to the are not controlled for when a fixed-effects model is used. If such household-level
flood? Such a comparison between flood-affected and nonaf- endogeneity really exists in the data, the appropriate model to use combines
fected villages indicates the average impact due to the flood a two-stage instrumental variables technique with a household fixed-effects
model (2SLS IV-FE), but if no such endogeneity exists, ordinary FE model
plus the effect of numerous other changes over time. The ques-
remains the better method. A WuHausman test can determine whether FE or
tion is: what is the impact of flood on household borrowing, IV-FE is more appropriate. These exercises have been carried out in a article
coping, and other indicators of household welfare net of these (Khandker, 2005), which rejects the endogeneity of borrowing observed at the
other effects? household level.
178 S.R. Khandker / Agricultural Economics 36 (2007) 169180
where measures the effect of coping on household con-
sumption and other outcomes (Y). By substituting Eq. (9) into
Eq. (10), we get the reduced form equation for household out-
comes, which can be written as:
Yijt = T + Xijt + Vijt + Djt + j + i + ijt , (11) After controlling for the months of interviews, flood intensity
where = c + c b , = c + c b , = c + c b , and bility to poverty, and a negative effect on household welfare
= c + c b are reduced-form parameters to be estimated.
Taking the first difference for a two-period model cancels
time invariant variables (( j and ( i ), leaving:
Cij = b
T + b
Xij + b Vij + b
Dj +
ijb (12)
and
Yij =
T +
Xij +
Vij +
Dj +
ij , (13) On the other hand, the probability of coping (nonborrow-
where is the time difference operator.
Although flood data were not collected during 1991/92, we
know for a fact that there was no flood incident during 1991/92.
Thus, there is no way we can assess the impact of flood by
combining villages with flood and without flood even if we have
household survey data before and after flood. This is simply
because the effect of flood cannot be distinguished from the
effect of time on household outcomes. On the other hand, if we
observe the changes in the intensity of flood measured by the
days or months that flood lasted, it is possible to measure the
effect of the duration of flood. However, if flood density does
not vary (i.e., if all sample villages have the same duration of
flood), it is impossible to distinguish the effect of flood ( ) from
the effect of time () on household welfare outcomes. Flood
intensity must vary at the village level if we are to measure
the effect of the flood on outcomes. 11 Fortunately, the flood
intensity varies across villages from 4 to 130 days. This indeed
excludes the possibility of using the data from the villages not
affected by flood. In essence, this data analysis is restricted
to samples of villages affected by flood, where flood intensity
varies.
Now, we assume that village and household heterogeneity
do not change over time; in this case, we use household fixed-
effects method to control for household and village-level het-
erogeneity in estimating Eqs. (12) and (13). 12
11 Having information on flood intensity is sufficient to estimate the marginal
effect of flood on the household outcomes such as borrowing, consumption,
and asset-holding. This can be shown as follows: Consider an illustrative model
with first round (i.e., 1991/92 data point) outcome y i1 = 1 + i 1 , where 1
is an intercept and i 1 is an error associated with the outcomes in round 1, and
a second round outcome y i 2 = 2 + d i 2 + i 2 , where d i 2 is the duration of
flood during the second round. As there were no flood in round 1, d i 1 = 0 for
all i = 1 . . . N, but in the second round d i 2 > 0 for all i. The difference ( 2
1 ) represents the change in outcome y due solely to the passage of time. If the
flood intensity were the same for all sample villages in round 2 (d i 2 = 1 for all
i = 1 . . . N), then it would be impossible to identify 2 from the program effect
. Having d i 2 vary is sufficient to identify .
12 We already mentioned that endogeneity of changes in household borrowing
is not an issue. However, tackling village-level endogeneity of flood duration
Table 11B shows the summary statistics of explanatory vari-
ables and Table 12 shows the household fixed-effects estimates
of household outcomes such as per capita yearly expenditure,
household nonland asset, two measures of household coping
(nonborrowing and borrowing), and household vulnerability.
had a positive net effect on nonborrowing coping and vulnera-
such as per capita consumption and nonland asset. House-
hold per capita expenditure decreased by 0.2% and nonland
asset decreased by 0.5% for each additional day of flood du-
ration. That is, for an additional 10 days of flood household
per capita consumption decreased by 2% from its mean of Tk.
5,280, and nonland asset declined by 5% from its mean of Tk.
34,248. 13
ing method) increased by 0.2% and household vulnerability by
0.1% for each additional day of flood. Education matters a lot
in increasing per capita consumption and assets, and it seems to
act as a deterrent to coping and household vulnerability. Land-
holding helped increase per capita consumption and decreased
vulnerability. Road accessibility increased the likelihood that a
household would not adopt any coping measures to deal with the
flood. Household borrowing increased coping ability, as well
as per capita consumption and asset holding. A 10% increase
in borrowing increased the incidence of coping with borrowing
by 0.34%. Earlier descriptive analysis showed that microfinance
institutions enhanced households access to finance and thus,
seem to play an important role in enhancing coping ability.
7. Conclusions
While poverty defines who is poor, vulnerability defines who
is likely to be poor in future. For policymakers, both concepts
are important; yet knowing who is likely to be poor in the
future may be more important in designing appropriate policies
to mitigate poverty and vulnerability. 14
using a 2SLS IV method is difficult because of the unavailability of suitable in-
struments, which affect flood duration but not directly the household outcomes.
Note that the agro-climate endowments (for example, course of the river, el-
evation of the land, etc.) that affect the flood occurrence do not change in a
short time span such as 510 years. So, a FE model is a reasonably appropriate
model.
13 This is marginal impact that is different from average impact of flood
intensity which may be positive, negative, or zero. We have calculated average
effect of flood duration by estimating the same outcome equation, this time
including areas that were unaffected by the flood. The average impact of the
flood on household consumption turned out to be zero; in which case the
negative effect of the flood on outcomes such as per capita consumption is
consistent, given that diminishing returns apply and that average returns are
higher than marginal returns.
14 There is another reason for more emphasis on vulnerability than on poverty
itself. Poverty is a stock variable consisting of both chronic poor and transient
poor. Transient poverty may be temporary for a large number of households
identified as poor. It is vulnerability rather than poverty that may be more
relevant to policymaking.
 S.R. Khandker / Agricultural Economics 36 (2007) 169180 179

Table 12
Estimates of the impacts of the flood on consumption, assets and coping (fixed-effect method)

Explanatory variables Log of household per Log of household Household adopted Household adopted Household is
capita yearly nonland assets nonborrowing coping borrowing coping vulnerable to
real expenditure during the flood during the flood poverty

Flood duration in the village (days) 0.002 0.005 0.002 0.0008 0.001
Year (0 = 1991/92, 1 = 1998/99) 0.104 0.468 0.199 0.222 0.120
Log of household borrowing (taka) 0.011 0.046 0.002 0.034 0.013
Sex of household head (1 = M, 0 = F) 0.118 0.160 0.027 0.013 0.139
Age of household head (years) 0.002 0.004 0.002 0.002 0.002
Education of household head (years) 0.008 0.037 0.009 0.008 0.009
Max. education of household males (years) 0.018 0.010 0.017 0.004 0.032
Max. education of household females (years) 0.015 0.019 0.016 0.003 0.046
No adult males present in household 0.126 0.961 0.169 0.066 0.151
No adult females present in household 0.211 0.998 0.111 0.160 0.287
No spouse present in household 0.045 0.070 0.0004 0.013 0.097
Log of household landholding (decimal) 0.026 0.285 0.0007 0.005 0.038
Village is accessible by road whole year 0.011 0.210 0.050 0.154 0.026
Village has electricity 0.238 0.228 0.018 0.059 0.102
Proportion of village land irrigated 0.090 0.068 0.115 0.088 0.032
Adjusted R2 0.292 0.319 0.323 0.161 0.381
Number of observations 907 907 907 907 907
refers
to a significance level of 10% and refers to a significance level of 5%.
Note: Explanatory variables additionally include village level prices of rice, wheat, potato, cooking oil, egg, milk, daily wages of males and females, and dummies
for months of survey interviews.

This article attempts to study the extent of damage that house-
holds suffered during the 1998 flood in Bangladesh. Although
the 1998 flood was devastating both in coverage and duration,
its impact on human lives and economic assets was not so
devastating. This was partly because of effective institutional
(public, private, and NGOs) support during the flood followed
by a bumper crop. Households have strategies of their own
to cope with any crisis. Descriptive data analysis shows that
77% of the households in the flood-affected areas were able to
raise cash in the event of an emergency. Sixty percent of all
households adopted some sort of coping mechanism during the
flood, by borrowing, skipping meals, selling assets, or migrat-
ing from flood-affected areas. Among the households that were
vulnerable in 1991/92, this figure is 75%. Fifty-two percent of
all households were both vulnerable and adopted some coping
mechanisms. Eighty-seven percent of the coping households
came from vulnerable households. That is, one in two house-
holds was likely to be poor and at the same time adopted a
coping mechanism. This suggests that half of the rural house-
holds were able to mitigate the suffering caused by the 1998
flood.
By defining vulnerability as the probability of falling into
poverty, we see that households in flood-prone areas are more
vulnerable than those in unaffected areas, but the number of
poor is lower in flood-affected areas than in nonaffected areas,
at least in 1998/99. Both vulnerability and poverty has declined
over time, but the extent of vulnerability has declined much
more than poverty.
Did the flood affect a households coping ability and other
indicators of its welfare? After controlling for both observed
and unobserved area and household characteristics, we find
that flood intensity actually reduced household welfare both
in terms of consumption and household nonland assets, and
it increased the incidence of nonborrowing coping and vul-
nerability, that is, the probability of being poor in future.
The presence of microcredit programs increased the amount
of borrowing coping. Household borrowing also increased
household welfare by raising both consumption and asset
holding.
Although the flood affected a sizeable percentage of house-
holds and their welfare, it had no lasting impact on consump-
tion and assets, either because of the ensuing bumper crop or
through resources made available to vulnerable households as
flood relief or through other means including borrowing from
microcredit and other programs during and after the flood.
Policy makers can intervene to minimize reductions in con-
sumption during external shocks such as flooding by targeting
vulnerable households. The interventions include ad hoc mea-
sures as well as long-term investment. Ad hoc measures during a
crisis include relief and rehabilitation. Longer term intervention
should be investments in human capital development, improved
access to credit, and village infrastructure development.
Acknowledgments
This article has benefited from comments by two anonymous
reviewers. The author is grateful to Hussain Samad for excellent
research assistance. The views reflected in the article are entirely
the authors and not necessarily those of the World Bank.
180 S.R. Khandker / Agricultural Economics 36 (2007) 169180
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