Does the Asset-Type Matter in Vulnerability Reduction? Evidence From Rural Indian Households

The importance of assets for household emanates from its consumption-smoothing ability and also for providing self-insurance. However, the extent of cushion provided by assets against economic shock is contingent on the type of asset. This paper examines the relation between asset ownership and vulnerability of households and whether the asset types owned by the households can help generate value. We use household level asset data from eight villages of the Indian state of Bihar to study the type of assets rural households own and their contribution in mitigating poverty levels. Our results confirm that there is significant heterogeneity in asset ownership across social groups with low value asset being owned by households belonging to the disadvantaged castes. Poorer households are trapped in a spiral of low assets and low income which inhibits further generation of high value assets and income therefrom. In general, ownership of unproductive assets across households is quite high compared to productive assets indicating the poor development of capital in Bihar providing little buffer against possible economic shocks.