Estimating Vulnerability to Covariate and Idiosyncratic Shocks
AbstractHouseholds in developing countries are frequently hit by severe idiosyncratic and covariate shocks resulting in high consumption volatility. A household’s currently observed poverty status might therefore not be a good indicator of the household’s general poverty risk, or in other words its vulnerability to poverty. Although several measurements to analyze vulnerability to poverty have recently been proposed, empirical studies are still rare as the data requirements for these measurements are often not met by the surveys that are available for developing countries. In this paper, we propose a simple method to empirically assess the impact of idiosyncratic and covariate shocks on households’ vulnerability, which can be used in a wide context as it relies on commonly available living standard measurement surveys. We apply our approach to data from Madagascar and show, that whereas covariate and idiosyncratic shocks have both a substantial impact on rural households’ vulnerability, urban households’ vulnerability is largely determined by idiosyncratic shocks.
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Bibliographic InfoPaper provided by Ibero-America Institute for Economic Research in its series Ibero America Institute for Econ. Research (IAI) Discussion Papers with number 154.
Length: 38 pages
Date of creation: 09 Jan 2007
Date of revision:
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Vulnerability; idiosyncratic and covariate shocks; multilevel modelling;
Find related papers by JEL classification:
- I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty
- D60 - Microeconomics - - Welfare Economics - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-02-17 (All new papers)
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