DFG Research Unit 756 Collecting Data for Vulnerability Measurements: some initial findings from Thailand and Vietnam Hermann Waibel Seminar at Thailand Development and Research Institute, September 25, 2009

13:41 2Seminar at TDRI, Bangkok, Thailand, 25 September 2009 Outline  Project Objectives  Why Vulnerability Research?  Data Collection to Measure Vulnerability  Results of 1st Phase: Some Examples  Plan for 2nd Phase ( )

13:41 3Seminar at TDRI, Bangkok, Thailand, 25 September 2009 Overall objective of the Project “to advance the concept and the measurement of vulnerability to poverty and assess the sources of vulnerability through interdisciplinary economic research in Thailand and Vietnam”

13:41 4Seminar at TDRI, Bangkok, Thailand, 25 September 2009 Expected Results 1.A comprehensive conceptual and empirical basis for the assessment of vulnerability to poverty in Thailand and Vietnam 2.The relative importance of the sectoral and regional determinants of vulnerability 3.Strategies for more timely, better targeted and more cost effective social risk management

13:41 5Seminar at TDRI, Bangkok, Thailand, 25 September 2009 Project Components

13:41 6Seminar at TDRI, Bangkok, Thailand, 25 September 2009 Study Areas

13:41 7Seminar at TDRI, Bangkok, Thailand, 25 September 2009 I. Development Policy:  “Pockets" of poverty in emerging market economies  Poverty is a dynamic issue  Shocks make people vulnerable  How efficient do HH cope with shocks?  What policy interventions are appropriate? Motivation for the project

13:41 8Seminar at TDRI, Bangkok, Thailand, 25 September 2009 II. Research:  Collection of data specifically for measuring vulnerability  Explore the “black box” (risks and shocks)  Comparative study of vulnerability concepts  Understand Household decision processes (e.g. dynamics, multi-location)  Risk matters: From fate to fear! Motivation for the project

13:41 9Seminar at TDRI, Bangkok, Thailand, 25 September 2009 (1) Reducing vulnerability has an intrinsic value Well-being: having good prospects now to have enough in the future (2) Reducing vulnerability has an instrumental value Poverty trap: ex ante risk mitigating prevents adoption of high average return portfolios Why vulnerability Research?

13:41 10Seminar at TDRI, Bangkok, Thailand, 25 September 2009 Poverty Typology and Measurements CriterionDescription Perspectiveex post, ex ante Time Horizonstatic, dynamic Welfare indicatorconsumption, income, assets, non-monetary Poverty Type chronically-poor, transient-poor - structural - stochastic

13:41 11Seminar at TDRI, Bangkok, Thailand, 25 September 2009 Assets Income (I) Poverty line Transient poverty 0<VTP<1 No poverty VTP=0 Asset poverty line VTP=0.5 Probability to be poor Chronic poverty VTP=1 Structural poverty Stochastic poverty Asset based Vulnerability

13:41 12Seminar at TDRI, Bangkok, Thailand, 25 September 2009 Four prominent definitions of vulnerability 1.Uninsured exposure to risk and shocks (e.g. Jalan and Ravallion, 1999) 2.Expected Poverty (e.g. Pritchett et al., 2000) 3.Low level of expected utility (Ligon and Schechter, 2003) 4.Expected deprivation or individual vulnerability to poverty (Calvo and Dercon 2005)

13:41 13Seminar at TDRI, Bangkok, Thailand, 25 September 2009 Vulnerability as Expected Poverty (VEP) V h : vulnerability c h : consumption of HH z: poverty line p: probability EP: expected poverty

13:41 14Seminar at TDRI, Bangkok, Thailand, 25 September 2009 Measurement of vulnerability (Calvo and Dercon 2007) V* = V(z,y,p) z = benchmark, i.e. poverty line y = vector of outcomes across n states of the world p = a vector of corresponding probabilities. Vulnerability as expected deprivation - accounting for the probabilities of negative future events and their severity :

13:41 15Seminar at TDRI, Bangkok, Thailand, 25 September 2009 Data Collection Procedure  Limit to Thailand and Vietnam  Large Provincial sample >  Panel data, (at least four waves planned)  Multi-location households, (include the migrants)  Combine different fields of economics:  Welfare Economics and Poverty Dynamics  Agricultural Economics  Financial Institutions  Economic Geography

13:41 16Seminar at TDRI, Bangkok, Thailand, 25 September 2009 Sampling procedure province districts villages households purposive sample ( location, per capita income ) stratified random sample (e.g. population density, share agricultural households) random sample random sample ( based on available lists ) 2 surveys à 4,400 respondents Study Areas and sampling procedure

13:41 17Seminar at TDRI, Bangkok, Thailand, 25 September 2009 Module / ContentMain Variables Contribution to vulnerability research 1* General survey information Location Location factors, Poverty and vulnerability mapping 2 Actual Household Characteristics Size, composition and dynamics, education, health Testing and advancing the concept 3 Shocks experienced during past five years and perceived risks for the next five years Type, timing, duration, scope, severity, financial consequence, ex post coping measures, covariance, subjective assessment of risk and well-being; type, frequency, severity, consequence of expected risks and ex ante mitigation measures Vulnerability concept, causes of vulnerability, coping and mitigation strategies 4 Land, Agriculture and Natural Resources Land size and ownership status, land value, crop and livestock technology and production, self-consumption, productivity, costs, returns, timing and extent of natural resource extraction Source of income, causes of vulnerability Modules of questionnaire and variables to measure vulnerability

13:41 18Seminar at TDRI, Bangkok, Thailand, 25 September 2009 Module / ContentMain Variables Contribution to vulnerability research 5 Off-farm employment including wage labour Type, contractual arrangements, location, travel costs, job acquisition costs, duration of work, wage and fringe benefits Source of income, causes of vulnerability 6 Non-farm self- employment including cottage industries Type, investment, costs and returns Source of income, causes of vulnerability 7 Borrowing, Lending, Public and other transfers and insurance Type, sources, contractual arrangements, conditions amounts, payment frequencies Source of income, causes of vulnerability 8 Household Consumption Food and non food items, other expenditures Consumption 9Assets including house Purchase value depreciation and service life Coping capacity Modules of questionnaire and variables to measure vulnerability

13:41 19Seminar at TDRI, Bangkok, Thailand, 25 September 2009 “Shock” module

13:41 20Seminar at TDRI, Bangkok, Thailand, 25 September 2009 Risk module

13:41 21Seminar at TDRI, Bangkok, Thailand, 25 September 2009 Selected Results  Descriptive Statistics  Income Composition  Demographic Characteristics  Pattern of shocks  Data Robustness Test and Aggregate Vulnerability  Risk Perception and Risk Attitude  Key messages of 1st project phase

13:41 22Seminar at TDRI, Bangkok, Thailand, 25 September 2009 Indicators of Data Quality  Total sample in 2007: 4,381  Missing cases 2007 ( ~ 2 %)  Total sample in 2008: 4,284  Attrition: ~ 2 %  Replacement rates : ~ 20 %  Standard Errors are acceptable  Initial assumptions confirmed  New issues emerged

13:41 23Seminar at TDRI, Bangkok, Thailand, 25 September 2009 Age structure in Buriram versus Thailand Sources: DFG FOR756 Household survey 2007, Thailand: Institute for Population and Social Research (2003)

13:41 24Seminar at TDRI, Bangkok, Thailand, 25 September 2009 Type of shocks by province for Thailand and Vietnam Source: DFG FOR756 Household survey 2007.

13:41 25Seminar at TDRI, Bangkok, Thailand, 25 September 2009 Educational Attainment of Household members Source: DFG FOR756 Household survey 2007.

13:41 26Seminar at TDRI, Bangkok, Thailand, 25 September 2009 Results: Income composition Share of income component in %, crop year 2006/07

13:41 27Seminar at TDRI, Bangkok, Thailand, 25 September 2009 Results: Income composition Share of income component in %, crop year 2007/08

13:41 28Seminar at TDRI, Bangkok, Thailand, 25 September 2009 Income composition

13:41 29Seminar at TDRI, Bangkok, Thailand, 25 September 2009 Income composition

13:41 30Seminar at TDRI, Bangkok, Thailand, 25 September 2009 Change in crop prices - Vietnam

13:41 31Seminar at TDRI, Bangkok, Thailand, 25 September 2009 Change in crop prices - Thailand

13:41 32Seminar at TDRI, Bangkok, Thailand, 25 September 2009 Robustness Tests: Stochastic Dominance Relations  Are conclusions on vulnerability driven by the choice of the measure ?  Compare cumulative distributions of income and consumption at provincial level and search for stochastic dominance relations between these distributions  Search for stochastic dominance relations (FSD, SSD,TSD) below the threshold income  Comparisons should allow for robust conclusions on welfare with non censured data  Provide a benchmark for various vulnerability measures

13:41 33Seminar at TDRI, Bangkok, Thailand, 25 September 2009 Distribution of per capita income in Thai provinces Source: DFG FOR756 Household survey 2007.

13:41 34Seminar at TDRI, Bangkok, Thailand, 25 September 2009 Dominance relations for provincial distributions and critical values: Per capita consumption Source: DFG FOR756 Household surveys 2007.

13:41 35Seminar at TDRI, Bangkok, Thailand, 25 September 2009 Consumption distributions – cross-country comparison Source: DFG FOR756 Household surveys 2007, Source: DFG FOR756 Household survey 2007.

13:41 36Seminar at TDRI, Bangkok, Thailand, 25 September 2009 Per capita income distributions Source: DFG FOR756 Household surveys 2007, 2008.

13:41 37Seminar at TDRI, Bangkok, Thailand, 25 September 2009 Per capita income distributions 2007 – 2008 (lower part) Source: DFG FOR756 Household surveys 2007, 2008.

13:41 38Seminar at TDRI, Bangkok, Thailand, 25 September 2009 Summary Observations  No meaningful FSD relations -> all vulnerability comparisons depend on the measure used and the poverty line  For consumption data SDD occurs -> consistent with FGT vulnerability indices and the Calvo/Dercon measure  Consumption Vulnerability ordering by province in Thailand : NP < BR < UR  In Vietnam: Ha Tinh < Hue < Dak Lak  Income and consumption vulnerability not consistent  No difference between per capita per adult equivalent

13:41 39Seminar at TDRI, Bangkok, Thailand, 25 September 2009 Key Messages of 1st phase  Vulnerability data base  reasonably valid data can be collected  "but it takes time and it is expensive"  spatial dimension of vulnerability is feasible  Vulnerability concept  determinants of vulnerability vary  downside risk matters  Alternative benchmarks seem to be useful  Household heterogeneity including gender matters

13:41 40Seminar at TDRI, Bangkok, Thailand, 25 September 2009 Agriculture:  Part-time farming dominates (TH)  Shocks and risk perception affects diversification within agriculture and outside (TH&VN)  Majority of shocks are in agriculture (TH&VN)  Shocks can contribute to natural resource degradation (VN)  Typical patterns of coping observed for shocks in farm households (TH) Key Messages of 1st project phase

13:41 41Seminar at TDRI, Bangkok, Thailand, 25 September 2009  Financial Markets:  Consumption insurance of rural HH only partially possible  Village level microfinance institutions improve access to credit but are not an effective "shock absorber" (TH)  Economic Geography:  non-agricultural wage employment has potential to reduce vulnerability (TH)  income diversification has positive effect on HH welfare (VN)  Employment in rural-based industries more stable in the large firms (TH)  Higher participation rates in non-agricultural wage labour among peri- urban HH Key Messages of 1st project phase

13:41 42Seminar at TDRI, Bangkok, Thailand, 25 September 2009 Project plan for next phase  Add another two panel waves in 2010 and 2011  Refine risk module and risk experiment  Add investment module  Add village business survey  Interview domestic migrants once (in 2010)

13:41 43Seminar at TDRI, Bangkok, Thailand, 25 September 2009 Economic Geography -Vulnerability by region, HH types -Nature of off-farm employment by region -Regional differences of crisis and vulnerability - Differences in responses to shocks between agricultural and non-agricultural households - Demand for skills of rural-based industries vs. human capital of rural households Financial Institutions -Finance as a shock absorber? -Issues of rural development finance -Risk attitudes, gender and cultural differences Agriculture -Economic crisis and de- velopment of agriculture in peripheral areas -Economic crisis and natural environment -Risk perceptions and decision making Vulnerability and HH dynamics Management of Vulnerability Database Risk preferences and perceptions Non-agricultural income Thailand Vietnam Financial institutions and employment Research Topics 2nd Project Phase

13:41 44Seminar at TDRI, Bangkok, Thailand, 25 September 2009 Thank you very much for your attention!

13:41 45Seminar at TDRI, Bangkok, Thailand, 25 September 2009 Risk attitudes  Risk is a major variable in vulnerability assessments  Combining risk experiments with risk questions in surveys  Simple self-assessment is validated by survey evidence  Risk experiment may need to be adjusted to cultural context and level of education  Gender does not seem to matter  More testing is needed !

13:41 46Seminar at TDRI, Bangkok, Thailand, 25 September 2009 Results: Risk attitudes, survey based

13:41 47Seminar at TDRI, Bangkok, Thailand, 25 September 2009 Results: Risk attitudes, experiment

13:41 48Seminar at TDRI, Bangkok, Thailand, 25 September 2009 Results: Coefficient of partial risk aversion (experiment)