Policy responses to economic vulnerability

The present paper was prepared by Ms. Willene Johnson, member of the Committee for Development Committee, as a background paper for deliberations by the Committee at its eighth session. This study reviews policy efforts to advance growth and development in the least developed countries, in particular those efforts aimed at promoting well-being by reducing vulnerability to economic shocks. The paper draws on empirical research analysing the relationships between economic vulnerability, growth and policy. Given that domestic policy efforts are weakened by the shocks that characterize vulnerability, the international community has an important role to play in countries¡¯ efforts to cope with economic instability. The present paper begins with an assessment of certain international efforts to mitigate economic vulnerability and focuses on how these efforts may have reduced the likelihood of systemic shocks as well as on how they may have enhanced the resilience of individual countries with regard to shocks. The second part of the study examines how certain countries have used domestic policy instruments to mitigate and contain the economic risk factors that contribute to vulnerability and insecurity. The concluding section draws on the range of international and domestic policy responses with a view to identifying those interventions that have been successful or that show promise for promoting future development. The present paper does not explore issues related to conflict or the environment, yet it is clear that development can only be sustained when war and natural disasters are held at bay. These topics were omitted not because they are unimportant, but because they are too important and would be worthy of a more comprehensive treatment.