Macro vulnerability in low income countries and aid responses
Macro vulnerability of the poor countries, an increasing concern of the international community, is analyzed as the risk that their development be hampered by the shocks they face, natural or external. Structural vulnerability mainly results from the size of the shocks and the exposure to the shocks, while general vulnerability also depends on resilience, mainly determined by policy. We first explain how, through instability, vulnerability affects growth and development, arguing four main points. The ex post effects are at least as important as the ex ante or risk effects. Instability affects productivity growth rather more than the level of investment. Primary or exogeneous instabilities lower growth through intermediate and policy related instabilities. Instability also increases the level of poverty (and child mortality), beyond its effects through the rate of growth. Second we examine how, for operational purposes, a synthetic measure of structural vulnerability can be obtained in an Economic Vulnerability Index (EVI), as that developed at the UN. The components of such a structural vulnerability indicator should be related both to the size of the natural and external shocks and to the exposure to these shocks. They should be averaged so that to reflect the interaction between shocks and exposure. The last part considers the implications for aid policy of the macro vulnerability of poor countries. It relies on the view that aid dampens consequences of vulnerability (i.e. vulnerability increases aid effectiveness) and that the aid volatility issue must be reexamined with this regard. Three aid responses are considered. Vulnerability (EVI) can be used as a criterion for aid allocation. Aid can be also designed as an insurance, if it can be disbursed quickly and effectively. Finally, but difficultly, aid can be oriented to contribute to the long-term reduction of vulnerability
Working Paper No . 2010 / 77 When Unstable , Growth Is Less Pro-Poor
Macroeconomic instability has been increasingly considered as a factor lowering average income growth and, in this way, is a factor slowing down poverty reduction. But it can also result in slower poverty reduction for a given average rate of growth, due to poverty traps, often examined at the microeconomic level. Testing a model of poverty change on a panel of data for more than 80 countries from 1981 to 2005, we find that income instability results in a lower poverty reduction for a given growth. It reflects a distributional effect not fully captured by a change in the Gini coefficient.
The contribution of charcoal production to rural livelihoods in a semi-arid area in Kenya
Forest incomes in the form of both timber and non-timber forest products are an important source of livelihood for many communities in Africa. A major forest resource is charcoal, which contributes to the livelihoods of millions across the region. While incomes from charcoal are used to meet a wide spectrum of needs within rural livelihoods, the role of charcoal production on livelihoods of small-scale producers is not well understood. Therefore, we provide an example on the importance of charcoal on livelihoods in an agropastoralist community in a semi-arid region in Kenya. Based on a household questionnaire targeting 150 charcoal and 150 non-charcoal makers, as well as focus group discussions, we assessed the determinants for participation in charcoal production and developed a household typology based on charcoal income dependence. We also determined the role of charcoal in income equalization and poverty reduction. Our study shows that charcoal contributes about 20% of the household income in the study area. Gender, land size and the number of food-scarce months are the key determinants of participation in charcoal production. Based on the poverty analysis, we conclude that even though charcoal income does not lift the producers out of poverty, it can mitigate the impacts of poverty by reducing the poverty gap and poverty severity. Based on our findings, we recommend a multipronged approach to address sustainable rural livelihoods including a more explicit acknowledgement of charcoal production as a source of rural income. We also recommend broadening of the local livelihood base and a more active management of the woodland to ensure the sustainability of the income.