Measuring Household Vulnerability To Poverty And Assessing Impact of Welfare Programs on Vulnerability To Poverty: An Empirical Study In Odisha

Abstract

Households are not only poor but also vulnerable, which means that poor households may remain poor while non-poor households may fall into poverty as a result of different covariate and idiosyncratic shocks and lack of coping measures. An understanding of households vulnerable to future poverty will be crucial for sustainable growth and development. This study examines three inherently interconnected issues: changes in poverty status, household vulnerability to future poverty, and the role of the welfare program in reducing vulnerability. Using panel data of 1353 households and a survey dataset of 479 households in rural Odisha, the study addresses three objectives: First, to estimate the changes in poverty status and the factors determine it. Second, to measure household vulnerability to poverty using both the monetary and multidimensional approaches. Third, to assess the impact of welfare program on household vulnerability to monetary and multidimensional poverty. The panel dataset used in the study was derived from the India Human Development Survey (IHDS) with a state representative sample of 1353 rural households from Odisha. The second data comes from the household survey of 479 households from three districts of the southern region of Odisha. For the purpose of estimating changes in poverty status and the factors that influence it, the study used a spells approach and a multinomial logistic regression model. The findings demonstrate that over time, households move in and out of poverty. In particular, it is observed that 25.26% of the households have been chronically poor, 45.24% of the households have been transient poor, and the remaining 29.50% of households have been non-poor. It has also been found out that households are less likely to remain as ‘chronic poor’ if they have access to higher education, asset, engaged in the non-farm sector, participate in social capital, and ownership of land. The second objective was analyzed in two steps. Firstly, conventional and counting approaches were used to estimate monetary and multidimensional poverty rates. Secondly, the vulnerability was modelled as expected poverty using the Feasible Generalized Least Squares (FGLS) econometric approach to measure the monetary and multidimensional vulnerability to poverty. The results show that about 35% of households in Odisha are vulnerable to monetary poverty and 55% of households are vulnerable to multidimensional poverty. This is significantly higher than the observed poverty level of about 28% and 47%, respectively. Among the districts analyzed, the ii proportion of households that are at high risk of falling into poverty is highest in the Koraput district, followed by Kandhamal and Nabarangpur districts. Further, households engaged in farming are observed to be most vulnerable, followed by those engaged in wages in non-farm and self-employed in non-farm sectors. The impact of the welfare program (rural livelihoods program) on both the monetary and multidimensional vulnerability to poverty was analyzed using Propensity Score Matching (PSM) and Endogenous Switching Regression (ESR) models. The findings demonstrate that welfare program has a positive impact on reducing monetary vulnerability to poverty. More specifically, the household’s vulnerability to poverty is reduced by 3% for the households who participated in the welfare program. The main policy implications are that poverty reduction efforts in rural Odisha would be more effective if they include not only the poor but also the vulnerable.