Risk management strategies and labour productivity in rural Africa

It is largely acknowledged that the lack of insurance causes inefficiency in production choices. In rural Africa, people try to deal with this lack of insurance by implementing various strategies. Traditional risk management strategies include actions such as diversifying their income generating activities (through changing labour allocation or varying cropping practices), accumulating assets, sharing risk between households, and saving and borrowing when they can. These multifaceted strategies are subject to serious technological, environmental and economic constraints that limit their effectiveness. Furthermore, they have long run effects on productivity. Beyond the loss of specialization gain and the inefficient use of inputs, risk management strategies have long-term effects on productivity by weakening the health of the farmers. Poor health affects well being and productivity of individuals and households. Using data from Kagera region in Tanzania from 1991- 1994, I found that health expenditure (costs of hospitalization, outpatient costs, drugs and transportation) have a negative impact on the variation of the Body Mass Index (BMI). This means people go to hospital when the illness gets worse and the cost of preventive care is prohibitive for them. As BMI is largely associated with agricultural productivity and wages, a formal health insurance