The vulnerability and resilience of households in Vanuatu and Solomon Islands to global macroeconomic shocks
Creators: name: McDonald, Lachlan
Publisher: name: RMIT University
Year: 2024

description: The Small Island Developing States of Vanuatu and Solomon Islands are renowned for their exposure to exogenous shocks. However, the vulnerability and resilience of households in these countries to experiencing poverty as a result of economic shocks is less understood. Recent global macroeconomic shocks, including the spike in international food and fuel prices in 2007 and 2008 and the subsequent Global Economic Crisis (GEC), pushed many households in developing countries into poverty. However, a lack of household-level quantitative data means that there is little information on how these shocks affected households in either Vanuatu or Solomon Islands. <br><br>This research uses empirical data from a cross-sectional survey of households that was specifically designed to examine the vulnerability and resilience of households to global macroeconomic shocks. In early 2011 six communities in each country were surveyed, ranging from inner-urban squatter settlements of the respective capital cities to some of the most geographically distant areas in each country. The original contribution of this thesis is that it marks the first time that the micro effects of macroeconomic events are studied in such a broad range of communities in either country. <br><br>Household poverty is identified using the nascent, though well-known, Multidimensional Poverty Index (MPI). A new Melanesian MPI (MMPI) is also created, which accounts for distinctly local aspects of well-being, such as food gardens and social support systems. Both the MPI and MMPI indicate that poverty is highest in both urban squatter settlements where land is limited and the most isolated communities where infrastructure is limited. In contrast, poverty is lowest in rural communities with good transport links to central markets. Households were almost universally exposed to price shocks, largely through their purchases of imported food and fuel, which provide a direct link to international commodity price fluctuations. In contrast, the dualistic structure of the economy tended to insulate most rural households from weakening labour demand associated with the GEC. These effects were therefore limited to urban areas and communities with direct links to agricultural exports. While households used a variety of different mechanisms to cope with the shocks, it is clear that domestic food gardens and informal systems of social support are integral to households’ ability to manage risk. Yet, it is also clear that neither provides households with full insurance against shocks. Urban squatter communities and female-headed households were among the most acutely vulnerable. <br><br>Combining empirical information on poverty, exposure to past shocks and households’ revealed preference for coping with shocks, the analysis also formally estimates households’ vulnerability to future poverty. The results indicate that vulnerability is widespread, with exposure to risk being the key determinant. This is an important finding as it illustrates the nexus between the well-known vulnerabilities of each country at a national level and household-level vulnerability. <br><br>In order to strengthen households’ resilience to future shocks, social protection policies must shift the burden of managing risk away from individual households. Importantly, these policies must also build upon, rather than weaken, the unique assets of the local context.<br>