Abstract

Households in low- and middle-income countries are frequently exposed to economic shocks, such as inflation, financial crises, and job losses, which can have lasting effects on their welfare and decision-making. While much of the literature has focused on how shocks affect consumption, savings, and labor supply, less is known about how households adjust their composition and living arrangements in response to financial distress. This paper addresses this gap by examining how Nigerian households respond to price hikes and economic volatility, particularly between 2019 and 2024, using longitudinal data from the Nigeria General Household Survey - Panel (GHS-Panel).

Economic shocks can alter household dynamics in profound ways, affecting migration patterns, cohabitation, and resource-sharing strategies. Vulnerable groups—such as low-income families, those reliant on remittances, and rural households—are especially susceptible to these shocks, often lacking access to formal safety nets or credit. Structural inequalities further exacerbate these vulnerabilities, making it crucial to understand the mechanisms by which households adapt to financial hardship. Our study aims to causally estimate how households adjust their size and composition in response to rising prices, with a particular focus on whether economic distress leads to household consolidation or fragmentation.

To address endogeneity concerns—where household spending patterns and price exposure may be jointly determined—we employ an instrumental variable (IV) approach using a shift-share (Bartik) instrument. This method leverages exogenous variation in price changes across communities and baseline spending shares to identify the causal impact of price hikes on household size adjustments. By constructing a “leave-one-out” Bartik instrument, we ensure that the instrument is not mechanically correlated with household-specific shocks, thereby mitigating bias from unobserved factors.

Nigeria provides an ideal context for this analysis, given its recent history of economic volatility driven by rising food and fuel prices, currency depreciation, and the removal of fuel subsidies. The GHS-Panel allows us to track households over time and observe changes in household composition, consumption, and reliance on informal safety nets. Our analysis focuses on the post-harvest visits of Wave 4 (2018/19) and Wave 5 (2023/24), capturing the period before and after significant economic shocks.

Empirical results reveal that Nigerian households respond to rising living costs by significantly increasing their household sizes. Specifically, a 1% increase in price shock exposure leads to a 4.9 percentage point increase in household size, primarily driven by the addition of members aged between five and sixty-five years. This suggests that the expansion is not due to changes in fertility or mortality, but rather to adults moving in together to share resources. The response is most pronounced among poorer households and in northern regions, where kinship networks and informal support systems are stronger. We find no significant evidence of household downsizing or fragmentation, indicating that consolidation is the dominant coping strategy.

These findings align with economic theory and previous empirical work, which highlight the value of “doubling up” as a risk-sharing mechanism in times of financial distress. In contexts where formal social protection is limited, households rely on extended family and cohabitation to reduce per capita expenses and benefit from economies of scale. However, such arrangements may also lead to challenges, including strained relationships, reduced privacy, and limited access to essential services.

Our study contributes to two strands of literature: the impact of economic shocks on household welfare, and the role of risk-sharing and living arrangements in mitigating financial distress. By providing new causal evidence on household compositional changes in response to price hikes, particularly in a developing economy, we offer insights that are relevant for policy discussions on social safety nets, migration, and economic resilience.

In conclusion, Nigerian households adapt to economic hardship primarily by consolidating living arrangements, rather than fragmenting. This response is driven by the need to share resources and reduce costs, especially among the most vulnerable groups. Policymakers should recognize the importance of informal safety nets and kinship networks, while also strengthening formal social protection mechanisms—such as targeted cash transfers and employment support—to alleviate financial burdens. Future research should explore the long-term consequences of these adjustments on labor market participation, child well-being, and overall household welfare, ensuring that economic policies enhance resilience and prevent adverse coping mechanisms.