September 2002

IZA DP No. 574: Understanding Interhousehold Transfers in a Transition Economy: Evidence from Russia

published in: Economic Development and Cultural Change, 2004, 53 (1), 131-56

This paper uses data from the Russian Longitudinal Monitoring Survey to describe and model the determinants of interhousehold transfers. Russian households have experienced large reductions in income during the post-Soviet transition period, with a particularly severe decline occurring in the fall of 1998. Sharply declining fertility, increasing mortality, and past demographic catastrophes has left a population which is both young (few elderly) and old (one of the oldest working-age populations in the world). Informal networks in Russia are likely to take on distinctive characteristics as the country’s economic institutions are underdeveloped and there is a very limited social safety net, while household structure closely resembles that found in much wealthier countries. Although it is often assumed that the elderly in Russia are a highly vulnerable economic group, we actually find that transfers flow strongly from the elderly to their adult children, whom are typically in the early part of the life-course (i.e. in school, starting to work, or recently married). This is especially true for the elderly in rural areas. While households with higher longer-term resources receive on net more transfers, we also find strong evidence that transfers respond to economic needs (i.e. transitory fluctuations in resources).