Insights on household’s resilience to shocks and poverty: evidence from panel data for two emerging economies in Southeast Asia

Given the importance of understanding the resilience of rural households to shocks and poverty in developing countries, we consider resilience as a capacity and estimate a (latent) variable reflecting household’s resilience capacity, and we investigate how better resilience capacity can help rural households mitigate the negative impacts of shocks and improve their welfare. We use panel data of 3367 households from two emerging economies in Southeast Asia collected in three survey waves for empirical analyses. We use a generalized structural equation model to estimate the latent variable of household’s resilience capacity. Then, the results of fixed-effects estimations show that the lagged resilience capacity of rural households is significantly and negatively correlated with losses caused by different types of shocks. Moreover, the results of fixed-effects estimations with a control function approach indicate that an improvement in resilience capacity can prevent rural households from falling into poverty in absolute and multidimensional terms.