Income recovery in urban and rural areas in Columbia

Abstract: This thesis investigates whether the household income recovery after a negative income shock, caused by a health or death shock, differs between urban and rural areas in Colombia. The hypothesis is that urban areas are financially worse off compared to rural areas after a shock due to differences in availability of formal and informal insurances. Uninsured households in urban areas are not covered by either a formal or informal insurance which thus makes them worse off compared to their rural counterpart. By using linear OLS regressions and the difference-in-difference-in-differences identification strategy this thesis was able to confirm the research question that there is a statistically significant difference in income recovery between urban and rural households, between those affected and not affected by the shock, before and after the shock occurred. The results also seem to confirm the hypothesis due to the insufficient performance of formal insurances in urban areas. This because the findings suggest that formal insurances are unable to compensate the loss of the informal insurance system as they cannot counteract the negative impact of the income shock. The results also show that regardless of area, poor households are more likely to experience a shock compared to wealthy households.