Poverty and "Damaging Fluctuations": How do they Relate?

Abstract

Recent panel data sets suggest that in some places perhaps half of the poor are not poor all the time, and also as much as 80 percent of "poverty severity" may be due to large fluctuations through time. Some of these dynamics are due to life-cycle events, but much of it represents "damaging fluctuations." These cause immediate damage, and may trigger responses leading to chronic poverty or intergenerational poverty. Moreover, just the possibility of damaging fluctuations, even if they do not occur, may generate more risk-averse behavior, which hampers growth and (because it is more likely to be common among poorer people) increases inequality. The paper discusses the concept of damaging fluctuations, contrasting it with the more common, and related, terms of "risk" and "shocks." Six categories of damaging fluctuations are identified: disease or injury, violence, natural disaster, harvest failure, terms-of-trade deterioration, and reduced access to income-earning work. The paper presents evidence of how the poor differ from others in their exposure, vulnerability, and aversion to damaging fluctuations, and how these lead to more poverty.

Negotiating risk and poverty in mangrove fishing communities of the Bangladesh Sundarbans

“…Poor fishers and their families in less developed and developing countries are more affected by most of these risks than those in developed countries because they have fewer means to cope with shocks and the aftermath of exposure to multiple risks (cf. Sinha et al 2002;Fafchamps 1999). Cashdan (1985: 455) refers to risk as the probability that "an unpredictable loss will occur."…”

Untitled

“…Recent studies show in particular how shocks and adverse events that affect individuals' and households' income, consumption, or assets are not only a cause of short-term transient poverty, but may also lead to longer-term chronic poverty (Sinha, Lipton and Yaqub 2002;Alderman, Hoddinott and Kinsey 2004;Dercon, Hoddinott and Woldehanna 2005). In Africa the World Bank (2004) provides evidence on the impact of various shocks, notably rainfall and illness on consumption, using cross-sectional data from 1995 and 2000.…”

Two Concepts of Causation: Implications for Poverty

“…It is a function of exposure to shocks along with individual or community response. Six of the most prevalent shocks in the global South are illness, violence and conflict, natural disasters, harvest failure, terms of trade deterioration, and loss of employment (Sinha et al., ). The analytical relevance of the focus on vulnerability is to shift causal analysis from ‘want and lacks’ to active processes of impoverishment triggered by shocks.…”