On May 27, a lecture was held at the KDIS main campus under the theme of "Drought Insurance and Human Capital: Exploring Short- and Long-term Impacts on Child Work and Education." The lecture was held by Hyuk Harry Son, Post-Doctoral Research Fellow at Utrecht University's School of Economics. Prof. David Sungho Park, a development economist and assistant professor at KDIS, introduced the lecturer, saying that it would be a very good time for students interested in the development economy, saying it is closely related to their research field.

Through the latest research on herdsmen in East Africa, the lecture deeply explored the role financial instruments play in protecting human capital and strengthening economic resilience in communities vulnerable to climate change and natural disasters. Based on two papers currently under review, Son’s lecture analyzed the short-term and long-term effects of index-based livestock insurance, especially focusing on human capital investment and behavioral changes.

The study included drylands of southern Ethiopia and northern Kenya, which relied on extensive herding and were exposed to frequent droughts. Prior to the introduction of drought insurance, financial markets were scarce, leaving households with very limited means of risk management. Index-based livestock insurance, introduced in Kenya in 2009 and Ethiopia in 2012, is designed to be accessible to low-income people by reducing transaction costs and moral hazard, as it assesses pasture conditions through satellite imagery rather than individual livestock losses. In the short term, the insurance had the effect of reducing child labor participation and shifting from part-time labor and school parallel to full-time school participation. School enrollment itself did not increase significantly, but educational concentration did improve. In addition, households showed changes in production strategies that reduced the number of livestock and increased the mobility of livestock, which made it difficult to utilize child labor, thereby reducing labor demand. Although insurance coverage did not directly lead to higher short-term income, it had a positive impact on behavioral changes to improve productivity.

The long-term follow-up results were also very impressive. Ten years later, a re-examination of 82% of the original households showed a 40% to 50% increase in the level of children's education in insured households. This is attributable to changes in the composition of livestock, which reduced the proportion of small livestock, such as goats and sheep, which are heavily burdened by children's labor, and increased the proportion of large livestock, such as high-value but high-risk cows and camels. This positive change was found to have been sustained by changes in risk perception and investment behavior from insurance coverage, rather than the receipt of insurance money itself. Son emphasized that the results suggest that insurance is not just a means of compensation, but changes risk management and human capital investment behavior in the long run.

During the post-lecture Q&A session, participants asked a variety of questions about the way children in herding areas attend school and the mechanisms of insurance effects. It was explained that children usually walk to school, especially older boys, who are engaged in grazing between pastures and water prices, and younger children take care of small livestock. Short-term cash income effects were difficult to measure clearly, but increases in in-kind  income from livestock products such as milk were observed, suggesting increased productivity. Regarding adverse selection and moral hazard issues that can arise when insured, no serious problems were found thanks to experimental design using random discount coupons, and exponential insurance design and subsidies were able to prevent them to some extent. As for changes in the composition of livestock, it was noted that insurance coverage allowed children to reduce the proportion of small-sized livestock with a high labor burden and switch to higher-value large-scale livestock. The question of the commercial sustainability of insurance products, which are currently heavily dependent on subsidies from institutions such as the World Bank, was raised. Because market competition is limited, additional market development and competition are needed for long-term independence.

Finally, it was emphasized that the newly adopted production strategies and behavioral changes by households are maintained for a long time even after the insurance provision is terminated. This shows that insurance is not just a temporary monetary compensation, but an important means of making positive structural changes in risk mitigation and human capital accumulation. Through this lecture, one KDIS student said that it was a meaningful time to learn how to empirically analyze complex economic and social problems in developing countries and how financial innovation can contribute to international development and policy design. This lecture is also in line with the goal of cultivating global talents pursued by KDIS, and will serve as the foundation for students to gain hands-on learning experiences and play a leading role in future developments. We would like to thank Hyuk Harry Son for sharing his research with us.