Water scarcity, diarrhea, and health insurance uptake in Ethiopia: an instrumental variables approach

Provision of safe drinking water continues to be a challenge in water-stressed African regions. This paper investigates how water scarcity affects diarrheal illness and health insurance uptake in Ethiopia. It further examines heterogeneous effects related to households' water purification habits and handwashing facilities, and identifies underlying mechanisms. The study combines socioeconomic data with high-resolution weather and water quality test data. The analysis uses an instrumental variables approach with temperature shocks as an instrument for water scarcity. Findings indicate that a 1% rise in water scarcity is associated with an increased probability of diarrheal illness by 4.2% and acquisition of health insurance by 2.5%. The impact on diarrheal illness is larger among households that do not boil their water and lack access to handwashing facilities with water. No significant difference in health insurance ownership is observed between households that purify drinking water and those that do not. This result potentially reflects higher risk aversion among the former. The effects are driven by households' use of unimproved water and sanitation facilities as well as higher medical spending on doctor visits and prescribed medications. These results highlight the need to improve water access and expand health insurance to reduce climate-related health risks in Ethiopia.