Income Volatility and Social Protection in Developing Asia

Most developing countries in Asia have introduced market-oriented economic reforms and face increasing exposure to global markets. Households in these countries thus have greater opportunities to raise their standard of living. However, they also face riskier environments and typically have to cope with greater income volatility. This paper undertakes a critical review of the social protection literature to understand the impact of vulnerability to income risk in developing Asian economies, and the role of social protection in managing that risk. The paper highlights the fact that social protection mechanisms are important in helping vulnerable households mitigate as well as reduce risk, to enable them to invest in high-risk but high-return activities. Thus public policy plays an important role in both protecting and empowering vulnerable individuals. Key policy implications are suggested based on the critical review.