On the economic vulnerability of low-income countries

Abstract

This chapter examines the relevance of the economic vulnerability concept for low-income countries (LICs), a topic which has recently been given considerable importance by several international bodies. Reference is also made to the vulnerability of small island developing states. Conceptual aspects of vulnerability are first discussed. It is argued that an indicator of structural economic vulnerability across LI Cs can be constructed with three main components namely (1) natural shocks proxied by instability in agricultural production (2) trade shocks, proxied by instability ofreal exports and (3) structural exposure to these shocks, proxied by the size of the population. Other possible components are also examined. Special reference is made to the economic vulnerability index, constructed by the UN Committee for Development Policy (CDP-EVI). The chapter argues that structural vulnerability is a matter of concern for growth, factor productivity and co-operation policies.