Shocks and the dynamics of poverty: evidence from Vietnam

Abstract

A large share of the population in developing countries still lives in poverty and their livelihoods are reliant on natural resources, which exposes them to greater risk. A better understanding of possible effects of adverse events on a household's well-being would therefore be an important contribution to the literature on vulnerability as well as beneficial to evaluating poverty alleviating policies. This study applies an asset-based approach to household panel data collected in the 2000s from Vietnam to explain the effects of shocks and household assets on the dynamics of poverty. The analyses are based on a multinomial logit model which estimates the effects of a household's asset levels and their changes that resulted from investments and negative shocks on the transitions into and out of poverty. The results show that a household's well-being is positively determined by levels of and changes in human, physical, and social capital, and that some household groups become more vulnerable to poverty when faced with shocks while others are immune to shocks.