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Estimating Vulnerability to Covariate and Idiosyncratic Shocks

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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 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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  • Kenneth Harttgen & Isabel Günther, 2007. "Estimating Vulnerability to Covariate and Idiosyncratic Shocks," Ibero America Institute for Econ. Research (IAI) Discussion Papers 154, Ibero-America Institute for Economic Research.
  • Handle: RePEc:got:iaidps:154
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    File URL: http://www2.vwl.wiso.uni-goettingen.de/ibero/working_paper_neu/DB154.pdf
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    Cited by:

    1. Villa, Juan M. & Nino-Zarazua, Miguel, 2014. "Poverty dynamics and programme graduation from social protection: A transitional model for Mexico's Oportunidades programme," WIDER Working Paper Series 109, World Institute for Development Economic Research (UNU-WIDER).
    2. World Bank, 2012. "Madagascar - Three Years into the Crisis : An Assessment of Vulnerability and Social Policies and Prospects for the Future, Volume 1. Main Report
      [Madagascar après trois ans de crise : Evaluation d
      ," World Bank Other Operational Studies 12324, The World Bank.
    3. Evans Jadotte, 2010. "Vulnerability to Poverty: A Microeconometric Approach and Application to the Republic of Haiti," Working Papers wpdea1004, Department of Applied Economics at Universitat Autonoma of Barcelona.

    More about this item

    Keywords

    Vulnerability; idiosyncratic and covariate shocks; multilevel modelling;

    JEL classification:

    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty
    • D60 - Microeconomics - - Welfare Economics - - - General

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