Poverty Vulnerability In The Perspective Of Assets - A Decomposition Method And Its Application

As Chinese households are exposed to many risks during the transition period, an ex post and static poverty measurement is apparently insufficient. More and more literatures have emerged since the forward-looking concept of "vulnerability" proposed by the World Bank in the2000/2001report. Following the asset-based approach to poverty analysis developed by Cater and May (1999,2001), this paper tries to empirically measure the vulnerability to poverty of Chinese rural households, and it is of great importance for China’s anti-poverty policies.The whole paper is arranged in a logical order and is divided into five Chapters. Chapter1briefly discusses the background and significance of the topic, the innovations and the deficiencies, as well as the framework. Chapter2is the literature review. On the one hand, we summarize a variety of definitions and approaches to measure vulnerability. On the other hand, the differences between poverty and vulnerability are noteworthy. And we sum up in six points. Chapter3discusses the asset-based approach to vulnerability in detail. According to income poverty line and asset poverty line, there are five different poverty groups:stochastic-chronic poverty, structural-chronic poverty, stochastic-transient poverty, stuctural-transient poverty, never poor. Chapter4analyses vulnerability using panel data from916rural households of Shandong and Shanxi province between1995and2005. To explore poverty trends, we compute the Foster-Greer-Thorbecke (FGT) poverty measures: poverty headcount (P0), poverty gap (PI), and poverty severity (P2). Then two models are specified and we use two econometric methods accordingly, that is, Three-Step Feasible Generalized Least Squares (FGLS) and Fixed Effect Vector Decomposition (FEVD). As a robustness check, we also estimate welfare transition using the1.25dollar poverty line. Chapter5concludes the paper.The findings are as follows:Firstly, the majority of rural households are vulnerable for structural reasons in both provinces. Secondly, the more assets are accumulated, the more important the structural factors are. Thirdly, households fall in or get rid of poverty due to stochastic events in the short run, but the determinants of the welfare for rural households are structural in the long run. Fourthly, no matter the poverty line is high or low, these results are still robust. Fifthly, the influences of the risk for the rich which are caused by stochatistic events are being amplified.Finally, there are some innovations in this paper. It is a new and very interesting viewpoint. The essence of vulnerability is its ex ante angle and this is explicitly interpreted in this paper. So far no research has used the two methods of FGLS and FEVD at the same time. Furthermore, the conclusions derived from large sample are more persuasive. Perhaps the variables on behalf of various assets are incomplete, taking data availability into account. Expenditure instead of income is a better choice for the indicator of households’well-being. Further research should also consider the case of rural households located in the middle and west provinces.