Asset Accumulation in Rural Households during the Post‐Showa Depression Reconstruction: A Panel Data Analysis*

• DOI: http://doi.org/10.1111/asej.12091
• Author: Masanori Takashima,Motoi Kusadokoro,Takeshi Maru
• Published date: 01 June 2016
• Date: 01 June 2016

Asset Accumulation in Rural Households during

the Post-Showa Depression Reconstruction:

A Panel Data Analysis*

Motoi Kusadokoro, Takeshi Maru and Masanori Takashima

Received 25 November 2013; Accepted 9 February 2016

This paper investigates asset accumulation in Japanese farm households during

reconstruction following the Showa Depression. After the ShowaDepression, farm

households emphasized accumulation of cash and quasi-money rather than produc-

tive assets. The accumulation of cash and quasi-money is consistent withthe buffer

stock hypothesis. Evidence regarding accumulation of livestock, which is some-

times used as the buffer stock in modern developing countries, is not conclusive.

The presence of well-developed financial institutions in prewar Japan may have

allowed farm households to smooth consumption via cash and quasi-money.

Keywords: asset accumulation, buffer stocks, farm households, prewar Japan.

JEL classification codes: N55, O12, Q12.

doi: 10.1111/asej.12091

I. Introduction

Farm households have two main motivations for holding assets. First, assets are

the source of agricultural production, and, hence, income generation, especially

productive assets such as land and livestock. Second, farm households can use

an asset as a buffer stock to smooth consumption by withdrawing the accumulated

assets when faced with negative income shocks. The second motivation is more

relevant in developing economies, where access to formal credit and insurance

markets is limited. This coping strategy may decrease the ability of the household

*Kusadokoro (corresponding author): Institute of Agriculture, Tokyo University of Agriculture and

Technology, 3-5-8 Saiwai-cho, Fuchu, Tokyo 183-8509, Japan. Email: motoi_k@cc.tuat.ac.jp. Maru:

The Institute of Economic Research, Hitotsubashi University,2-1 Naka, Kunitachi, Tokyo 186-8603,

Japan. Email: marl@ier.hit-u.ac.jp. Takashima: The Institute of Economic Research, Hitotsubashi

University,2-1 Naka, Kunitachi, Tokyo 186-8603, Japan. Email: takamasa@ier.hit-u.ac.jp. The authors

gratefully acknowledge the financial support of Grants-in-Aid (#25245047, #22243030, and

#22223003) from the Japan Society for the Promotion of Science and the Japanese Ministryof Educa-

tion, Culture, Sports, Science and Technologythrough the Research Unit for Statistical and Empirical

Analysis in Social Sciences Center of Excellence Program. We are grateful to Atsushi Chitose, Takeshi

Fujie, YukinobuKitamura, Takashi Kurosaki, Ken Miura, Tetsuji Okazaki, TakeshiSakurai, and Takao

Yurugi, an anonymous referee, the editors of this journal for their comments and suggestions, and to

Hastoya and Syunsuke Fukumuro for organizing the data.

© 2016 East Asian Economic Association and John Wiley & Sons Australia, Ltd

Asian Economic Journal 2016, Vol.30 No. 2, 221–246 221

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to generate future income if a negative income shock leads to large losses in

productive assets (Dercon, 2004).

Coping strategies against income shocks have been intensively investigated in

modern developing countries. Empirical literature on saving behavior shows that

households in developing economies save a large part of their transitory income

to smooth consumption (Paxson, 1992; Alderman, 1996). However, the ability

to smooth consumption depends on the wealth of the household (Jalan and

Ravallion, 1999), and the precautionary motive for saving is higher in households

with liquidity constraints (Lee and Sawada, 2010).

Livestock has been recognized as an important buffer stock. Rosenzweig and

Wolpin (1993) provide evidence from Indian farmers to support this hypothesis.

On the contrary, some studies on Africa show the reluctance of farm households

to sell livestock under negative income shocks (e.g. Fafchamps et al., 1998;

Kazianga and Udry, 2006). Rather, they compensate the loss of transitory income

by adjusting grain stock (Kazianga and Udry, 2006).

Recent empirical literature considers the dynamic aspects of asset accumula-

tion. When a household has a precautionary motive and utilizes an asset as a

buffer stock, then the asset holding has an equilibrium (target) level (Carroll

and Kimball, 2008). However,asset dynamics have multiple equilibria if a poverty

trap is present in the economy (Carter and Barrett, 2006). Mogues (2011) applies

the dynamic model assuming a single equilibrium on the accumulations of

livestock and grain stock of Ethiopian farmers. Her findings are consistent with

the buffer stock hypothesis for both assets. Carter and Lybbert (2012) find a

threshold size of herding in Burkina Faso, in that farm households with herding

below the threshold prefer asset smoothing over consumption smoothing.

Studies investigating asset adjustments against income shocks generally focus

on livestock and grain stock. Most of the investigated areas are characterized by

semi-arid or arid climatic conditions, prevalence of animal husbandry, and lack

of well-developed financial institutions. The asset dynamics of farm households

under different environments may vary from those of the empirical studies. More-

over, the effects of financial institutions on asset dynamics are still unclear.

Examining the historical experiences of modern developed countries can help

fill this gap, because the environments surrounding households in the early phase

of economic development in these countries may have differed from those in

modern developing countries, even if their income levels were broadly compara-

ble. James et al. (2007) find that the saving behaviors of working-class American

families in the late 19th and early 20th centuries are consistent with the precau-

tionary models. Evidence from farm households is still lacking, however, largely

because of data scarcity (Kurosaki, 2013).

The Japanese rural economy in the prewar period (before 1945) provides an

interesting example. Japanese agriculture in those days was characterized by an

abundance of labor, a scarcity of land, and temperate and humid climatic condi-

tions. Agricultural land was the most important productive asset, and animal

husbandry was not so common. Importantly, government interventions helped

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© 2016 East Asian Economic Association and John Wiley & Sons Australia, Ltd