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Measuring Households' Vulnerability to Idiosyncratic and Covariate Shocks – the case of Bangladesh

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Author Info

  • Md. Shafiul Azam

    (Economics, School of Social Sciences, University of Manchester, UK)

  • Katsushi S. Imai

    (Economics, School of Social Sciences, University of Manchester (UK) and RIEB, Kobe University (Japan))

Abstract

The paper examines the level and sources of vulnerability in rural Bangladesh using a household survey. We use a simple two-level random intercept model to estimate expected mean and variance in consumption as well as to decompose the variance into idiosyncratic and covariate components. Our results indicate that both idiosyncratic and covariate shocks have considerable impact on household's vulnerability and idiosyncratic shocks seem to have greater impact on household's consumption vulnerability than the covariate shocks. Furthermore, idiosyncratic shocks appear to have a relatively higher impact on relatively well endowed (i.e. in terms of human capital, land holdings, activity status etc.), well off households and covariate shocks seem to have a relatively higher impact on poorer, less educated, household's vulnerability. Our results also reveal that rural vulnerability in Bangladesh is mainly poverty induced rather than risk induced. Around 78 per cent all who are vulnerable is accounted for by low expected mean consumption and only 22 per cent of them are due to high consumption volatility. Overall vulnerability in rural areas is estimated to be 50 per cent. The categorization of poverty into transient and chronic poverty is even more insightful. The study finds that those without education or agricultural households are likely to be the most vulnerable. The geographical diversity of vulnerability is considerable. It is suggested that ex ante measures to prevent households from becoming poor as well as ex post measures to alleviate those already in poverty should be combined.

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File URL: http://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/DP2012-02.pdf
File Function: First version, 2012
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Bibliographic Info

Paper provided by Research Institute for Economics & Business Administration, Kobe University in its series Discussion Paper Series with number DP2012-02.

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Length: 53 pages
Date of creation: Jan 2012
Date of revision:
Handle: RePEc:kob:dpaper:dp2012-02

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Keywords: Poverty; Vulnerability; Risks; Poverty dynamics; Bangladesh;

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References

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  1. 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.
  2. Dercon, Stefan, 2004. "Growth and shocks: evidence from rural Ethiopia," Journal of Development Economics, Elsevier, vol. 74(2), pages 309-329, August.
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  7. Patricia Justino & Julie Litchfield, 2003. "Poverty Dynamics in Rural Vietnam: Winners and Losers During Reform," PRUS Working Papers, Poverty Research Unit at Sussex, University of Sussex 10, Poverty Research Unit at Sussex, University of Sussex.
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  9. Cesar Calvo & Stefan Dercon, 2005. "Measuring Individual Vulnerability," Economics Series Working Papers 229, University of Oxford, Department of Economics.
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  12. Marcel Fafchamps & Chris Udry & Katherine Czukas, . "Drought and Saving in West Africa: Are Livestock a Buffer Stock?," Working Papers, Stanford University, Department of Economics 97013, Stanford University, Department of Economics.
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Cited by:
  1. Rashida Haq, 2012. "Shocks as a Source of Vulnerability: An Empirical Investigation from Pakistan," Poverty and Social Dynamics Paper Series 2012:06, Pakistan Institute of Development Economics.

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