Economic vulnerability and resilience : concepts and measurements

Abstract

This chapter deals mostly with the definition of terms regarding economic vulnerability and economic resilience so as to distinguish between those economic conditions that are responsive to policy measures and those that are not. The author argues that it would be useful conceptually and methodologically to confine the discussion on economic vulnerability of a country to inherent and permanent economic features which render that country exposed to damaging forces outside its control. In this sense, economic vulnerability would not be responsive to domestic policy measures. It follows that the components of the Vulnerability Index should measure inherent features only. The author further argues that the discussion on economic resilience should refer to policy-induced changes, which affect the country's ability to cope with or withstand its inherent vulnerability. The chapter also proposes the construction of an index of resilience to complement the vulnerability index, so as to assess the risk of a country being harmed by external shocks. The resilience index could also serve to assess the extent to which economically vulnerable countries, individually or as a group, are moving ahead or otherwise, in coping with or withstanding their economic vulnerability. A number of variables which could be used to construct a composite resilience index are proposed.