Economic Resilience and Vulnerability: Concepts and Indices

This paper examines the concepts and indices of economic resilience and vulnerability. The central notion in clarifying both resilience and vulnerability is that of an adverse shock. If a shock does not alter the growth path of an economy or cause a recession, the economy is considered “resilient.” Resilience refers to an economy’s ability to return to its pre-shock growth trajectory. A resilient economy, after experiencing a shock, resumes its long-term growth path. Endogenous growth can strengthen economic resilience, and resilient economies tend to experience sustainable growth. Macroeconomic stability and effective institutions are two principal indicators of economic resilience. Resilience stems largely from economic policymaking, while vulnerability is related to the inherent structural characteristics of an economy that expose it to adverse shocks. Export concentration, dependence on strategic imports and external financing, as well as geographical vulnerability, constitute the main indicators of economic vulnerability. The greater the capacity to respond to shocks, the lower the vulnerability. The paper explores the indices of economic resilience, including Briguglio, Centennial group and Oxford FM Global. In vulnerability indices, the paper discusses the Briguglio vulnerability index, Guillamount and OECD indices.