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Households' Vulnerability to Covariate and Idiosyncratic Shocks

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  • Harttgen, Kenneth
  • Günther, Isabel

Abstract

Households 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 not met by the surveys that are available for most 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 shocks have a substantial impact on rural households' vulnerability, urban households' vulnerability is largely determined by idiosyncratic shocks. --

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Paper provided by Verein für Socialpolitik, Research Committee Development Economics in its series Proceedings of the German Development Economics Conference, Berlin 2006 with number 10.

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Date of creation: 2006
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Handle: RePEc:zbw:gdec06:4733

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Keywords: Vulnerability to poverty; idiosyncratic and covariate shocks; multilevel modelling;

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  10. Foster, James & Greer, Joel & Thorbecke, Erik, 1984. "A Class of Decomposable Poverty Measures," Econometrica, Econometric Society, vol. 52(3), pages 761-66, May.
  11. Paxson, Christina H, 1992. "Using Weather Variability to Estimate the Response of Savings to Transitory Income in Thailand," American Economic Review, American Economic Association, vol. 82(1), pages 15-33, March.
  12. Ligon, Ethan & Schechter, Laura, 2004. "Evaluating different approaches to estimating vulnerability," Social Protection Discussion Papers 30159, The World Bank.
  13. Jalan, Jyotsna & Ravallion, Martin, 1999. "Are the poor less well insured? Evidence on vulnerability to income risk in rural China," Journal of Development Economics, Elsevier, vol. 58(1), pages 61-81, February.
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