Assessing the Economic Vulnerability of Small Island Developing States and the Least Developed Countries

Macro vulnerability of the small island developing states (SIDS) as well as of least developed countries (LDCs) has been an increasing concern for the international community. This concern has led to the design of an economic vulnerability index (EVI). EVI assesses the structural economic vulnerability resulting from natural or external shocks faced by countries, and from their exposure to these shocks. Focussing on the consequences of exogeneous instabilities, we first explain how vulnerability affects growth, development and poverty reduction, particularly in small developing countries. The channels of transmission of shocks are explored. We then examine how the EVI, as a synthetic measure of structural vulnerability, has been designed and how it can be used to compare SIDS and LDCs, two groups of developing countries particularly vulnerable, but in a different way. Lastly, we argue that EVI is a relevant tool not only for the identification of LDCs, but also for the geographical aid allocation, so as to favour vulnerable countries, including both LDCs and SIDS, even though not all SIDS qualify as LDCs.