ABSTRACT
Vulnerability to poverty is defined as the risk that an individual will become poor due to potential covariate and idiosyncratic shocks. The risk is a combination of the probability or frequency of occurrence of shocks and the magnitude of their consequences [Overseas Development Institute (2005) ]. More specifically, vulnerability to poverty at household level is defined as the risk or probability that a household will be poor in the near future due to the consequences of a potential event such as drought, flood, lull in business, job loss, earthquake, sudden illness and many other shocks that people might face in a lifetime. These events appear to have negative longterm consequences for economic growth, development, poverty reduction and vulnerability. As a result, there is a chance that non-poor households might descend into poverty in the near future. It is also possible, though much less likely, currently poor households might escape from poverty. The former group may be termed descending non-poor and the later group ascending poor. These phenomena lead us to the concept of vulnerability to poverty [Suryahadi and Sumarto (2001) ]. In Indonesia between 1997 and 1998, about 16 per cent of rural households moved from being non-poor to poor, while 4 per cent of households were able to escape from poverty [Skoufias et al. (2000) ]. This is because Indonesia was badly affected by an economic crisis that started in mid-1997. Analysis of panel data of six developing countries also reveals similar transitions in and out of poverty [Baulch and Hoddinott (2000) ]. In developing countries, particularly in rural areas, income instability is associated with natural disasters which lead to vulnerability to poverty. Vulnerability to poverty affects a large proportion of the population in poorer countries like Bangladesh since income is uncertain due to different shocks and other non-economic factors such as gender, age, illness, job loss, the death of an earning member, landlessness, unemployment etc.
