Estimating the Impact of Shocks on Vulnerability to Poverty: Case of Young Lives Households

Abstract

Internationally, static poverty measures have been used as indicators to evaluate the well-being of individuals and have served as tools for policy formulation. There are essentially two issues related to this, firstly static poverty measures tend to ignore the idiosyncratic and covariate shocks that households, especially in the developing world, face that lead to them moving in and out of poverty thus making these measures unreliable indictors of well-being. These segments can be identified as those that are vulnerable to poverty and can only be identified if dynamic measures of poverty are adopted such as vulnerability related measures. Secondly, there is a lack of representation of young people in poverty assessments in general owing to the transitional phase these individuals are in which requires assessment through dynamic poverty measures. In light of these issues, using the Young Lives dataset for countries Ethiopia, India and Vietnam, this study estimates the vulnerability levels using the Vulnerability as Expected Poverty (VEP) approach and assesses the impact of idiosyncratic and covariate shocks on vulnerability of households that have young individuals (ages 15 to 16) in them. To account for hierarchal data structures in the Young Lives dataset, this study has incorporated Multilevel Modeling with Maximum Likelihood technique used for estimation. This study concludes that for the case of Ethiopia and India, idiosyncratic vulnerability has the most impact on the vulnerability of the Young Lives households which is largely driven from existing low consumption prospects. For the case of Vietnam this study concludes that it is covariate shocks that have the most impact on the vulnerability levels of the Young Lives households which also stems from existing low consumption prospects.