DFG has extended the funding period of the Research Unit for another 3 years until 2012.

Press release of 18 January 2010 on the homepage of Leibniz University Hannover (in German) 

Collaborative research project of 4 universities receives 1.3 Million Euro

Big success for a research project of the Faculty of Economics and Management at Leibniz University of Hannover: The collaborative research unit "Vulnerability to poverty and dynamics of poverty in Southeast Asia" has been extended until 2012. The German Research Foundation provides funds of 1.3 Million Euros for a second phase of the project, in which Leibniz University of Hannover collaborates with Georg-August-University of Goettingen, Goethe University of Frankfurt/Main and the Justus-Liebig-University of Giessen. The overall objective of the research unit is to attain a better understanding of the dynamics of rural poverty and to develop new strategies for sustainable reduction of poverty and inequality. 

Since 2007 scientists from the fields of economics and economic geography have been analyzing the effects of shocks and crises such as flooding, storms, crop pests, accidents and death have on the livelihood on households in rural provinces of Thailand and Vietnam. Together with partner institutions in the two countries they have conducted a survey among about 4,400 households about their living conditions, income sources and experience of shocks in two consecutive years.

In the second phase the same households will be interviewed again. Moreover, family members who migrated to urban centers, such as Bangkok, Ho Chi Minh City and Hanoi, will be included in the survey. The comprehensive surveys will help to establish a unique set of data for the analysis of many topics with high relevance for development policy, such as the effects of the current financial and economic crisis or the food price crisis on poorer parts of the population."So far we find a number of exciting topics, which we are eager to investigate in more detail" says the coordinator of the research unit, Prof. Hermann Waibel of the Institute of Development and Agricultural Economics of Leibniz University of Hannover.

The research results will provide a basis for policy advice on the one hand - and in fact are in demand already by international institutions of development cooperation, such as the World Bank and the Asian Development Bank. On the other hand, the data base supports the further development and refinement of theoretical concepts in the discipline of development economics. An international scientific conference hosted by Leibniz University of Hannover in 2012 will provide the opportunity to present and discuss the results of the research unit.

Relevance

The economics of poverty has advanced during recent years to better explain the complexity of the poverty phenomena in developing countries. It has been recognized that static poverty assessments are insufficient measures for describing the long-term welfare situation of the poor. The Foster Greer Thorbecke (FGT) poverty measures applied to cross-sectional data are unable to capture the dynamic aspects of poverty. While, on a global scale, over one billion people live below the international poverty line of $1 per day, i.e. are poor at any point in time, many more people are faced with temporary poverty or are at a high risk of falling into poverty. Moreover, it has been recognized that a poor household’s currently observed welfare status does not say much about its future welfare. Due to growing uncertainty in the ecological, economic, and political conditions, taking account of the temporal aspects of poverty is becoming increasingly important. Therefore, dynamic concepts of poverty must treat the poverty problem in the context of risks, shocks and vulnerability.

Although the concept of vulnerability has meanwhile been recognized as an important component of the debate on pro-poor growth and poverty reduction, it is often treated in isolation: analyzed without making linkages to specific poverty reduction policies or structural or economic changes. This is partly due to data limitations as well as the lack of integrated research approaches that examine vulnerability as a measurement issue, and lack of a policy to arrive at comprehensive assessments of vulnerability and its determinants. There are now numerous dimensions, definitions, and indicators of vulnerability, which have been applied in various empirical case studies. However, there is no consensus yet on an agreed theoretical framework. The implementation of many of the theoretical suggestions are currently impossible due to the absence of intertemporal data on shocks, risks, their determinants, and possible coping mechanisms at the household level. Such a framework must combine and enhance existing approaches to vulnerability assessment and apply these to appropriate household-level data that allow for dynamic vulnerability analysis. The vulnerability framework to be developed needs to consider multiple aspects of a poor household’s capability to respond to various types of idiosyncratic and covariate shocks. To be useful for advancing theories of economic development on the one hand and to offer a good basis for designing effective strategies of social protection in the developing countries on the other hand, such a framework is best developed in actual country situations.

A relevant context for developing and testing a comprehensive vulnerability framework is found in the newly emerging market economies of South East Asia. In spite of their success in economic growth, in many cases these countries are still faced with a high degree of regional disparity in income and wealth and they show patches of deep poverty and high levels of vulnerability, mostly in the rural part areas. Thailand and Vietnam are two countries that fall into this category. In Vietnam the poverty rate fell from over 70% in 1990 to 32% in 2000 as a consequence of strong economic growth. In Thailand poverty has fallen from a level of almost 40% during the mid eighties to about 15% at the turn of the century. However, persisting regional disparities in the distribution of wealth disturbs the generally positive picture in the development of these two emerging Asian economies. People living in remote rural households have benefited proportionately less from the high average growth performance. More severely, these people are most vulnerable to the impact of various economic, ecological, and political shocks such as, for example, a drop in the price of an agricultural commodity (e.g. coffee in Vietnam), large-scale pest outbreaks (golden snail and brown plant hopper in Thailand and Vietnam), financial crises (see below), or epidemics like the avian flu, SARS, and natural disasters such as the recent tsunami. The number, extent, and impact of especially macro shocks have increased considerably in recent years. Such events are adding further burdens to the lives of poor people who are also frequently confronted with idiosyncratic shocks such as unemployment, illness, or death of family members or the household head. Therefore, shocks can drastically upset the process of economic growth and cause those who had already escaped poverty to fall below the poverty line again.

Perhaps the most prominent recent economic shock for both countries was caused by the Asian financial crisis of 1997-98. Per capita income declined, and poverty and inequality increased rapidly after the crisis. The crisis hit Thailand more severely than Vietnam because of Thailand’s more advanced integration in the global financial markets. However, Vietnam is expanding its financial sector and therefore could suffer a similar fate in the future. The events of the Asian economic crisis of 1997-98 also brought about new challenges for development economics and related disciplines. There is a need to better understand the consequences of external shocks, the often-inefficient adjustment processes to these events, overreactions of markets, and uncoordinated political responses. The effect of shocks can be an institutional breakdown, including a brisk depreciation of asset values, inability of traditional household coping mechanisms to function (with significant gender consequences) and temporary migratory movements across regions within countries and beyond. It has been observed that the poverty impact of the Asian financial crisis was most severe among poor farmers living in remote rural areas, who frequently migrate to urban areas for supplementary employment and income. The household income of these farmers heavily depends on non-farm income from temporary or permanent employment in the industrial or service sectors in the urban agglomerates.

Even though emerging Asian economies have meanwhile recovered from the financial crisis of 1997-98, such external shocks may occur again in the future. For example, a recent World Bank report mentions problems with Vietnam’s emerging financial sectors, where rapid credit growth of state-owned enterprises has led to the accumulation of non-performing loans. Also, as acknowledged by the Vietnamese government, poverty reduction achievements remain fragile with a high number of “near poor” living just above the poverty line and therefore vulnerable to shocks. Furthermore, future poverty tends to be concentrated among the rural population and ethnic minorities, especially in peripheral regions. Hence, economic growth alone will not be sufficient to markedly reduce poverty. Recent ecological shocks (such as avian flu, and the tsunami) underline the need to include vulnerability in the concept of sustainable development and in strategies for long-term reduction in poverty.

It follows from the above that a research unit (Forschergruppe) that brings together different fields of economics has excellent potential to make significant theoretical and empirical contributions to the subject of development. An interdisciplinary research unit following an overall development economics framework and consisting of various fields of economics like agriculture, financial markets and economic geography can effectively combine expertise from these relevant fields. For example, agricultural economics can analyze the effects of agricultural production and price shocks on the vulnerability of rural households. The economics of financial markets can help in the better understanding of the role of borrowing, saving and lending in reducing vulnerability, while economic geography can help the understanding of the influence of regional policies and institutions and regional disparities in education, as well as rural industrialization and urban-rural migration. The benefits of research collaboration in several fields of economics and economic geography are threefold: (1) the concept of social risk management is in itself an interdisciplinary approach, which cannot be analyzed without such cooperation beyond traditional field borders (economies of scope), (2) research collaboration enables sharing of resources, in particular existing databases that can be accessed by all collaborators (economies of scale), (3) through interdisciplinary research in different fields of economics and economic geography, research frontiers can be extended.

Thailand and Vietnam, the two proposed countries, are well suited for this research. On the one hand they show geographical proximity and on the other hand they have distinct structural differences. Both have been or are at risk of being confronted with major external shocks (e.g. financial crisis, tsunami, avian flu, drop in world market prices, competition from China). Both countries are characterized by a relatively well functioning state administration that can effectively play a catalytic role in the implementation of risk-reducing development strategies. While poverty and vulnerability are more pronounced in other regions, a major advantage of these two countries is the availability of strong counterpart institutions, which increases the likelihood of the research having an impact. Furthermore, marked differences in the level of development, in the institutional settings, and in the overall economic system – market economy vs. transforming socialist economy – allow scientifically interesting comparisons of the relative efficiency of the various strategies of risk reduction given the particular conditions in the two countries. The regions selected for investigation are located along both countries’ borders with Laos and Cambodia. They were identified on the basis of such criteria as widespread poverty, agriculture dominating economic activity, emigration and cross-border trade. Thus the location of the study areas allows the research to take into account advantages and disadvantages typically associated with border locations.

Objectives

The overall objective of the proposed DFG research unit is to advance theoretically and empirically the concept and the methodology of measuring vulnerability to poverty in the economic and political context of emerging economies in Southeast Asia. This objective will be reached through interdisciplinary economic research that is based on the establishment and analysis of a wide-ranging, joint database collected from rural households, firms and regional stakeholders in provinces in Thailand and Vietnam that border their common Indochina neighbors, i.e. Laos and Cambodia. The cross-sectional database will be complemented by panel data and secondary data from household surveys and provincial statistics.

Results of this research are expected to foster the understanding of the scientific community, development specialists and decision-makers in development economics in formulating policies for pro-poor economic growth and proactive social protection in a risky ecological, economic and political environment. Within a total time frame of six years, the first three-year phase will focus on conceptual issues and the establishment of an empirical basis for measuring vulnerability of poor households in the two countries. The specific objectives of phase 1 are:

• To expand and deepen the conceptual and methodological understanding and associated measurement issues involved with vulnerability to poverty in a risky global and national environment and provide a “state of the art” assessment of the vulnerability to poverty in Southeast Asia.
• To advance the scientific understanding of poor households’ decision-making in risky environments in emerging economies. This will be achieved through interdisciplinary analysis of intra-sectoral (agriculture), inter-sectoral and interregional (off-farm activities, migration) as well as interpersonal and inter-temporal (credit, saving and finance) ways of diversifying against external risks. It will also include intra- and inter- household ex ante and ex post coping strategies to reduce and manage vulnerability.
• To assess the impacts of shocks on the vulnerability to poverty of rural households and communities in terms of agricultural production, agricultural product markets, financial markets, social services and public goods, migration (labor markets) and technology adoption.
• To investigate the hypothesis of the concept of forward-looking social protection as an approach to align the growth equity trade-off in development. The results will provide guidance for developing country governments and for international donor organizations on effective and efficient public interventions to support risk-reducing strategies of the poor and vulnerable.

Phase 2 will focus on extended empirical analyses and the development of a quantitative framework for social risk management as a basis for designing appropriate policies of social protection for emerging economies. At the end of the second phase, the results of this interdisciplinary research will contribute to a more precise assessment of the impact of future crises subject to the state of economic development of a country. In addition, a better understanding of various preventive measures and adjustment mechanisms in response to crises, suitable for use under different socio-political systems, should be achieved.