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CONCEPTUALIZING, MEASURING AND PROFILING ECONOMIC VULNERABILITY AND RESILIENCE

2. Layout. The presentation is organised as follows:IntroductionJuxtaposing economic vulnerability and resilienceResults of the resilience index and country categorisationPolicy implications of the juxtaposition exerciseCountry profiling of economic vulnerability and resilienceConcluding consi

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CONCEPTUALIZING, MEASURING AND PROFILING ECONOMIC VULNERABILITY AND RESILIENCE

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    1. CONCEPTUALIZING, MEASURING AND PROFILING ECONOMIC VULNERABILITY AND RESILIENCE Lino Briguglio, University of Malta Commonwealth Secretariat London Wednesday 28 July, 2010

    2. 2 Layout The presentation is organised as follows: Introduction Juxtaposing economic vulnerability and resilience Results of the resilience index and country categorisation Policy implications of the juxtaposition exercise Country profiling of economic vulnerability and resilience Concluding considerations

    3. INTRODUCTION

    4. 4 Introduction The economic characteristics of small states are well documented, and include limited ability to exploit economies of scale; lack of natural resource endowments and dependence on exports and imports. Other characteristics relate to limitations of diversification possibilities; dependence on a narrow range of products; limitations on the extent to which domestic competition policy can be applied.

    5. 5 In the case of small island states, a major problem relates to high international transport costs and uncertainties of industrial supplies due to insularity and remoteness. In spite of this, many small island states would seem to be performing relatively well. This paper will explore this seeming contradiction. The role of good economic governance is seen to be of major importance for resilience building. Introduction (cont)

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    7. 7 Economic vulnerability refers to inherent proneness of an economy to exogenous shocks Manifestations of vulnerability include high degree of fluctuations in GDP and in export earnings There are inherent features associated with small states, which lead to economic vulnerability. Such vulnerability arises from the fact that the economies of small states are, to a large extent, shaped by forces outside their control. Meaning of Economic Vulnerability

    8. 8 Studies on economic vulnerability so far have focused on measuring the phenomenon by proxying exposure to shocks or assessing variability in per capita incomes. The economic vulnerability concept is related to exposure to shocks, and is sometimes measured by: Openness to international trade Export concentration Dependence on strategic imports. Many studies conclude that small states tend to be more economically vulnerable than other group of countries Studies on Economic Vulnerability

    9. 9 Economic smallness is associated with a relatively high reliance on international trade: ? high reliance on imports due to limited natural resource endowments and limited diversification possibilities; ? high reliance on exports due to the limited size of the market and to meet import expenditure.

    10. 10 What causes Economic Vulnerability? (cont)

    11. 11 In spite of their economic vulnerability, many small states manage to generate a relatively high GDP per capita, when compared to other developing countries This has been called the ‘Singapore Paradox’ One can explain this paradox by juxtaposing economic vulnerability with economic resilience. Success In Spite of and Not because of Economic Vulnerability

    12. 12 Economic resilience refers to the extent to which an economy can withstand or bounce back from the negative effects of external shocks. Economic resilience (resilire) refers to: the ability of an economy to recover quickly following adverse shocks: shock counteraction The ability of an economy to withstand shocks: shock absorption Meaning of Economic Resilience

    13. 13 Resilience can be measured by an index which refers to what a country is doing to mitigate its inherent vulnerability, such as sound economic governance The combination of the vulnerability and resilience indices would indicate the overall risk of being harmed by external shocks Economic Resilience Index

    14. 14 A framework for the measurement of economic resilience was developed by Briguglio et al. (2006) who constructed a resilience index based on the following factors: macroeconomic stability; microeconomic market efficiency; good governance; and social development. What helps to Build Economic Resilience?

    15. 15 Juxtaposing Vulnerability and Resilience

    16. 16 Juxtaposing Vulnerability and Resilience (cont)

    17. 17 On the basis of this methodology, one can propose 4 scenarios into which countries may be placed according to their vulnerability and resilience characteristics. These scenarios are termed “best-case”, “worst-case”, “self-made”, and “prodigal-son”. Countries classified as “self-made” are those that take steps to mitigate their inherent vulnerability by building their economic resilience, thereby reducing the risks associated with exposure to shocks. Countries falling within the “prodigal-son” scenario are those with a relatively low degree of inherent economic vulnerability but which adopt policies that expose them to the adverse effects of exogenous shocks.

    18. 18 The “best-case” scenario applies to countries that are not inherently highly vulnerable and which at the same time adopt resilience-building policies. Conversely, the “worst-case” scenario refers to countries that are inherently highly vulnerable but make matters worse by adopting policies that exacerbate the negative effects of their vulnerability.

    19. 19 These four scenarios or cases are depicted in the following figure, where the axes measure inherent economic vulnerability and nurtured resilience, respectively.In this scheme the best situation in economic terms falls in quadrant IV. The vulnerable small island states that have adopted resilience-building policies are likely to fall in quadrant II.

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    21. RESULTS OF THE RESILIENCE INDEX AND COUNTRY CATEGORISATION

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    24. 24 This approach could be used to: support decision-making, setting targets and establishing standards distinguish between inherent features and policy induced changes disseminate information and drawing attention to the issue of vulnerability and resilience focus the discussion on the essential elements, given the quantitative estimation requires precise definitions promote the idea of integrated action

    25. COUNTRY PROFILING

    26. 26 Studies on economic vulnerability and resilience focus on a cross-sectional approach, aimed at benchmarking countries within a global context. For the purposes of policy formulation and implementation, benchmarking within an international context is often merely a starting point which needs to be followed by more in-depth investigation of issues within the specific context of the country and its circumstances.

    27. 27 A project towards this end was developed by the Commonwealth Secretariat in collaboration with the University of Malta. This project led to the methodological framework juxtaposition of vulnerability and resilience described above. In addition, it led a conceptual approach, as proposed by Briguglio et al. (2008), which is aimed at building a template of variables to be considered in the derivation of a vulnerability/resilience profile for an individual country.

    28. 28 The derivation of the economic vulnerability/resilience profile is based on three facets, as follows: An assessment of the symptoms of economic vulnerability. An assessment of the causes of economic vulnerability. An assessment of the adequacy of the policy framework in generating economic resilience. Each of these assessment facets can be carried out through quantitative variables. In cases where quantitative variables are not available or insufficiently representative of the important issues under consideration, qualitative data can be used, which could then be expressed through a mapping scale of a number possibilities.  

    29. 29 The conceptual framework outlined above has been applied in practice to three small states, namely Seychelles, St Lucia and Vanuatu. In all three cases, the approach adopted consisted of four main phases as follows: The identification of agencies that need to be consulted The setting of 4 panels on specific items The organisation of a national consultation conference Paper on vulnerability and resilience profile of the country Follow up projects The national consultation conference which was organised for the purpose, was supported by the Commonwealth Secretariat and organised by the government of the respective small states, with the present author and his colleagues from the University of Malta as consultants.

    30. 30 The consultation conferences organised in the Seychelles, St Lucia and Vanuatu, were were each spread over two days, with the participation of about 70 public officials and representatives of civil society. In all the three conferences, the presentations and the ensuing discussions were very informative and elicited qualitative data which is often not easily accessible from public domain sources. The profiling exercises that were carried out have been useful mainly because they have enabled the countries concerned to carry out a self-examination so as to identify gaps in their policy framework

    31. CONCLUDING CONSIDERATIONS

    32. 32 Main Implications The main implication of this study is that vulnerability has negative connotations on economic development due to the effects of negative external shocks. On the other hand, resilience building has a positive influence on economic development as it helps a country to withstand or absorb these shocks. Also, economic resilience building leads to good economic governance. Many small states succeed economically in spite of the small size constraints, due to good economic governance.

    33. 33 Usefulness for policy The juxtaposition of economic vulnerability and resilience permits an assessment of the reasons behind the economic success or failure of small vulnerable countries. A number of policy implications were suggested, mostly intended to enhance resilience building by: - reducing instability, - improving the workings of the market, - enhancing political governance, and - promoting social development.

    34. 34 Usefulness for country profiling For the purposes of policy formulation and implementation, it is useful to undertake in-depth investigation of issues within the specific context of the country and its circumstances The profiling exercises carried out by the Commonwealth Secretariat in collaboration with the University of Malta have been useful in this regard as this has enabled the countries concerned to carry out a self-examination in order to identify gaps in their policy framework Small island states that would like to undertake such a profiling exercise are welcome to approach the Commonwealth Secretariat in this regard.

    35. 35 THANK YOU FOR YOUR ATTENTION

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