Vulnerability to poverty in Papua New Guinea

In the extant literature either income or consumption expenditures as measured over short periods of time has been regarded as proxies for the material well-being of households. However, economists have long recognized that a household’s sense of well-being depends not just on its average income or expenditures, but also on the risks it faces. Hence vulnerability is a more satisfactory measure of welfare. In this study we measure the extent of vulnerability as expected poverty and examine the importance of its determinants on the basis of an analysis of household survey data for Papua New Guinea (PNG). We find that in PNG, vulnerability and poverty are largely rural phenomena. Moreover, the distribution of vulnerability across different segments of the population can differ significantly from the distribution of poverty. In addition, there is a sizable fraction of the population of PNG who were observed to be non-poor but are estimated to be vulnerable to poverty. Thus, poverty reduction strategies in PNG need to incorporate not just alleviation efforts but also prevention.