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Households' Vulnerability to Covariate and Idiosyncratic Shocks

  • Harttgen, Kenneth
  • Günther, Isabel

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 not met by the surveys that are available for most 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 shocks have a substantial impact on rural households' vulnerability, urban households' vulnerability is largely determined by idiosyncratic shocks.

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Paper provided by Verein für Socialpolitik, Research Committee Development Economics in its series Proceedings of the German Development Economics Conference, Berlin 2006 with number 10.

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Date of creation: 2006
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Handle: RePEc:zbw:gdec06:4733
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  1. Mills, Bradford F. & del Ninno, Carlo & Rajemsison, Harivelo, 2004. "Commune Shocks, Household Assets, and Economic Well-Being in Madagascar," 2004 Annual meeting, August 1-4, Denver, CO 19956, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  2. Foster, James & Greer, Joel & Thorbecke, Erik, 1984. "A Class of Decomposable Poverty Measures," Econometrica, Econometric Society, vol. 52(3), pages 761-66, May.
  3. Garance Genicot & Debraj Ray, 2003. "Group Formation in Risk-Sharing Arrangements," Review of Economic Studies, Oxford University Press, vol. 70(1), pages 87-113.
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  7. Townsend, Robert M, 1994. "Risk and Insurance in Village India," Econometrica, Econometric Society, vol. 62(3), pages 539-91, May.
  8. Udry, Christopher, 1995. "Risk and Saving in Northern Nigeria," American Economic Review, American Economic Association, vol. 85(5), pages 1287-1300, December.
  9. Paxson, Christina H, 1992. "Using Weather Variability to Estimate the Response of Savings to Transitory Income in Thailand," American Economic Review, American Economic Association, vol. 82(1), pages 15-33, March.
  10. Pritchett, Lant & Suryahadi, Asep & Sumarto, Sudarno, 2000. "Quantifying vulnerability to poverty - a proposed measure, applied to Indonesia," Policy Research Working Paper Series 2437, The World Bank.
  11. Paul Gertler & Jonathan Gruber, 1998. "Insuring Consumption Against Illness," JCPR Working Papers 41, Northwestern University/University of Chicago Joint Center for Poverty Research.
  12. Filmer, Deon & Pritchett, Lant, 1998. "Estimating wealth effects without expenditure data - or tears : with an application to educational enrollments in states of India," Policy Research Working Paper Series 1994, The World Bank.
  13. Stefan Dercon & Pramila Krishnan, 2000. "Vulnerability, seasonality and poverty in Ethiopia," Journal of Development Studies, Taylor & Francis Journals, vol. 36(6), pages 25-53.
  14. Kochar, Anjini, 1995. "Explaining Household Vulnerability to Idiosyncratic Income Shocks," American Economic Review, American Economic Association, vol. 85(2), pages 159-64, May.
  15. Glewwe, Paul & Hall, Gillette, 1998. "Are some groups more vulnerable to macroeconomic shocks than others? Hypothesis tests based on panel data from Peru," Journal of Development Economics, Elsevier, vol. 56(1), pages 181-206, June.
  16. Carter, Michael R, 1997. "Environment, Technology, and the Social Articulation of Risk in West African Agriculture," Economic Development and Cultural Change, University of Chicago Press, vol. 45(3), pages 557-90, April.
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