The concept of vulnerability extends the idea of poverty to
include idiosyncratic as well as aggregate risks which can be defined as
the probability of being in poverty or to fall deeper into poverty in
the future. It can be categorised on the micro-and macro level where
macro vulnerability refers to worldwide threats to social welfare, e.g.
globalisation and recent international financial crises. Conversely,
micro vulnerability refers to the household level risks including health
risks, economic shocks, social shocks, natural disasters, and
demographic shocks [Tesliuc and Lindert (2004)]. To assess and estimate
vulnerability to poverty, various approaches had been proposed. First,
vulnerability can be seen as a probability of falling into poverty in
near future [Chaudhuri (2003); Christaensen and Subbarao (2005)]. The
other ways of measuring vulnerability consider it as low expected
utility [Ligon and Schechter (2003)] and vulnerability as uninsured
expose to risk, i.e., measures of cost, in terms of consumption [Tesliuc
and Lindert (2004)]. The basic idea is that the state of poverty at a
given point actually is not sufficient for assessing poverty and for
drawing results to design poverty reduction programs. Households face
various risks and do not know whether any possible shock will hit them
in future. So the assessment of poverty at a given point in time is a
static approach, not considering possible changes in the future. By
assessing vulnerability it refers to the dynamic perspective, it is
explicitly forward looking and tries to include the risks that may push
people into poverty in future
IDIOSYNCRATIC AND AGGREGATE RISKS, INEQUALITY AND GROWTH