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Estimating Vulnerability to Poverty using Panel data: Evidence from Indonesia

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  • Adama Bah

    (CERDI - Centre d'études et de recherches sur le developpement international - CNRS : UMR6587 - Université d'Auvergne - Clermont-Ferrand I)

Abstract

Traditional poverty measures fail to indicate the degree of risk of becoming or remaining poor that households are confronted to. They can therefore be misleading in the context of implementing poverty reduction policies. In this paper I propose a method to estimate an index of ex ante vulnerability to poverty, defined as the probability of being poor in the (near) future given current observable characteristics, using panel data. This method relies on the estimation of the expected mean and variance of future consumption conditional on current consumption and observable characteristics. It generates a vulnerability index, or predicted probability of future poverty, which performs well in predicting future poverty, including out of sample. About 80% of households with a 2000 vulnerability index of 100% are actually poor in 2007. This approach provides information on the population groups that have a high probability of becoming or remaining poor in the future, whether currently poor or not. It is therefore useful to complement traditional poverty measures such as the poverty headcount, in particular for the design and planning of poverty reduction policies.

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Bibliographic Info

Paper provided by HAL in its series Working Papers with number halshs-00936199.

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Date of creation: 14 Mar 2014
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Handle: RePEc:hal:wpaper:halshs-00936199

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Keywords: Poverty; vulnerability; Household consumption;

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  1. Pradhan, Menno, et al, 2001. "Eating Like Which "Joneses?" An Iterative Solution to the Choice of a Poverty Line "Reference Group."," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 47(4), pages 473-87, December.
  2. John Strauss & Duncan Thomas & Firman Witoelar & Elizabeth Frankenberg & Bondan Sikoki & Cecep Sumantri & Wayan Suriastini, 2010. "Cutting the costs of attrition: Results from the Indonesia Family Life Survey," Working Papers id:2652, eSocialSciences.
  3. Duncan Thomas & Elizabeth Frankenberg & James P. Smith, 2001. "Lost but Not Forgotten: Attrition and Follow-up in the Indonesia Family Life Survey," Journal of Human Resources, University of Wisconsin Press, vol. 36(3), pages 556-592.
  4. Bob Baulch & John Hoddinott, 2000. "Economic mobility and poverty dynamics in developing countries," Journal of Development Studies, Taylor & Francis Journals, vol. 36(6), pages 1-24.
  5. Pritchett, Lant & Suryahadi, Asep & Sumarto, Sudarno, 2000. "Quantifying vulnerability to poverty - a proposed measure, applied to Indonesia," Policy Research Working Paper Series 2437, The World Bank.
  6. Wenefrida Widyanti & Asep Suryahadi & Sudarno Sumarto & Athia Yumna, 2009. "The Relationship between Chronic Poverty and Household Dynamics : Evidence from Indonesia," Microeconomics Working Papers 22554, East Asian Bureau of Economic Research.
  7. Firman Witoelar, 2005. "Inter-household Allocations within Extended Family: Evidence from the Indonesia Family Life Survey," Working Papers 912, Economic Growth Center, Yale University.
  8. Asep Suryahadi & Sudarno Sumarto & Lant Pritchett, 2003. "Evolution of Poverty During the Crisis in Indonesia," Asian Economic Journal, East Asian Economic Association, vol. 17(3), pages 221-241, 09.
  9. Asep Suryahadi & Sudarno Sumarto, 2003. "Poverty and Vulnerability in Indonesia Before and After the Economic Crisis," Asian Economic Journal, East Asian Economic Association, vol. 17(1), pages 45-64, 03.
  10. Stefan Dercon & Pramila Krishnan, 2000. "Vulnerability, seasonality and poverty in Ethiopia," Journal of Development Studies, Taylor & Francis Journals, vol. 36(6), pages 25-53.
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