Economists have traditionally used static poverty measures to estimate well-being, target aid, and determine progress towards development goals. This is useful as a starting point, and gives a good snapshot of the household's situation at one point in time, but in the end, what we care about is the standard of living of the household over its entire lifetime. A household's well being depends not just on its expenditures at one point in time, but on its average expenditures over its lifetime. Because of this, researchers now want to measure chronic poverty, in addition to static poverty. Because this is a newer concept, the literature has not yet converged on one measure which is acceptable to all, as, arguably, the literature on static poverty has. We argue that using a measure of chronic poverty based on the average level of expenditures still misses an important portion of economic well-being.
For Voices of the Poor, the 2000/01 World Development Report, the World Bank interviewed tens of thousands of poor people in countries across the globe. These poor people stated that part of what makes poverty so un-bearable is the instability and unpredictability they face, leading to a feeling of vulnerability. Thus, we propose a measure of chronic poverty, which we call vulnerability, which incorporates the risk households face as well as their average level of expenditures.
The majority of vulnerability measures proposed thus far are static measures. (Elbers & Gunning (2006) is one exception.) Thus they are backward-looking rather than forward-looking. In this paper we begin with a static measure of vulnerability and analyze the South African KIDS data using this measure. Then, we propose four di®erent ways in which one could make the measure more forward looking. Lastly, we choose one of these methods and apply it to the South African data.
Vulnerability as a Measure of Chronic Poverty [Draft], Chronic Poverty Research Centre (CPRC), Manchester, UK, 17 pp.