Identification of Vulnerable Groups and Coping Strategies in Korea

Using a 5-year household panel data from Korea, this paper identifies the vulnerable households and their coping strategies during 1994-1998. We find that (i) larger households tend to be more protected from shortfalls in consumption; (ii) households with young children tend to decrease consumption of other items to achieve higher spending on children’s education; (iii) female-headed households were not more vulnerable but these households appear to trade off children’s educational spending for food consumption; and (iv) urban households became more vulnerable during the 1997 currency crisis. We find that households reduce their consumption of luxurious and durable items to cope with negative shocks to their income. They tend to increase their debt to smooth expenditure on education and medical care while using private transfer income to smooth consumption of food and other non-durable. Private transfer income appears to act as both an ex-ante risk-managing device and an ex-post coping mechanism. We do not find public transfer income to be an effective coping device during the initial period of the crisis primarily because social safety net programs were not yet in place during the period our analysis covers.