Vulnerability to Poverty in Latin America - Empirical Evidence from Cross-Sectional Data and Robustness Analysis with Panel Data

Abstract

This document presents a discussion of vulnerability estimates – defined as the risk of being poor in the future – in Latin American countries from both a conceptual and an empirical perspective, based on recent developments in the distributive literature. The document develops two main contributions. First, it presents cross-sectional vulnerability estimates (and their evolution over time) for 18 countries in the region, and compares their evolution with that of aggregate poverty rates. Second, based on longitudinal data for Argentina and Chile, the document carries out a validation exercise to assess how vulnerability measures fare as predictors of poverty at the aggregate and the micro levels, and compares their performance to that of other deprivation indicators. The main findings indicate substantial cross-country differences in vulnerability levels. Moreover, vulnerability measures provide good estimates of aggregate poverty trends. However, the validation exercise indicates that at the micro level there are sizeable misclassifications of households in terms of expected poverty. These results imply that vulnerability estimates should be complemented with information on shocks and aggregate trends for guiding focalised policy interventions.

Keywords: Vulnerability, Panel Data, Latin America