Title: Vulnerability to poverty in selected Central Asian countries
Abstract: 1. Introduction In the extant literature either income or consumption expenditures, as measured over short periods of time (say a year), has been regarded as a proxy for the material well-being of households. However, economists have long recognized that, under the assumption that a household is risk averse, its sense of well-being depends not just on its average income or expenditures, but also on the risks it faces. Thus the concept of vulnerability extends the notion of poverty to include idiosyncratic as well as aggregate risks. It is defined as the probability or risk today of being in poverty or to fall deeper into poverty in the future. Although they are different concepts, Holzmann and Jorgensen (2001) argue that poverty and vulnerability are closely related due to two established facts: (i) the poor are typically most exposed to diverse risks, and (ii) the poor have the fewest instruments to deal with these risks. However, we should be concerned about vulnerability because if policymakers design poverty alleviation policies in the current year on the basis of a poverty threshold of income or consumption in the previous year, 'the poor' who receive income support may have already escaped from poverty and 'the non-poor' who do not receive such support may have slipped into poverty due to various unanticipated shocks (e.g. increase in the relative price of food, or an illness incapacitating the main bread winner). Therefore, assessing vulnerability helps to distinguish between ex-ante poverty prevention interventions and ex-post poverty alleviation interventions. Moreover, analysing vulnerability allows us to investigate the sources and forms of risks households face, which helps to design appropriate safety net programs to reduce or mitigate risk, hence vulnerability to poverty. To deal with temporary poverty we can give poor households aid but to address vulnerability we need strategies like prevention, mitigation and coping arrangements (informal, market-based, and public). (1) Because poverty is normally defined as income or consumption being below a given level, income or consumption dynamics and variability can be proxies for vulnerability. This suggests three measurements of vulnerability: vulnerability as expected poverty (VEP), vulnerability as expected utility (VEU) and vulnerability as inability to insure consumptions. The main purpose of this paper is to assess VEP in the Central Asian region. Because data for other countries in this region were not available we study four countries: Azerbaijan, Kazakhstan, Kyrgyzstan and Tajikistan. Interest in economic conditions in Central Asian countries has recently grown for at least three reasons (Dowling and Wignaraja, 2006). First, the Central Asian region is rich in natural resources. Second, it has a strategic geographic position between Europe and Asia. Third, the Central Asian countries are former Soviet republics which followed socialist-oriented economic policies and are now reforming towards market-oriented policies. This last reason is particularly relevant in the context of poverty and vulnerability analysis because the transition process in Central Asian countries from centrally planned to market economies has exacerbated the incidence of poverty and income inequality (Heller and Keller, 2001, Bandara et al. 2004/05). Vulnerability in developing countries in general, and transition ones in particular, would differ from that of developed countries because of several reasons. First, financial markets in developing and transition countries are considered to be less efficient than those in developed countries so the poor in developing/transition countries have fewer market-based instruments like insurance to handle idiosyncratic risks. Second, social insurance programs such as those relating to unemployment, old-age, work injury, disability, widowhood, and sickness are hardly established in developing/transition countries. …
Publication Year: 2009
Publication Date: 2009-11-09
Language: en
Type: article
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Cited By Count: 21
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