# **1. Introduction**

**Many scholars have stressed that pure poverty measures might fall short of our understanding of how to create sustainable long-term growth paths for developing countries.** Traditionally, poverty and development economists have mainly focused on poverty and inequality measures when analyzing developing countries' growth paths. Recently, many scholars have stressed that this approach might fall short of understanding how to create long-term, sustainable development trajectories. In a more recent context, the COVID-19 outbreak and the war in Ukraine have shown how easily many households can fall back into poverty. Against this background, there is a need to understand not only poverty and inequality globally, but also vulnerability to poverty.

**While many households might currently not live in poverty, they could be easily pushed into it through the occurrence of natural or human-made hazards.** Vulnerability is the inability of an individual or group to encounter a natural or human-induced hazard. These households are considered to be vulnerable to poverty. Their probability of becoming poor due to external shocks, such as an economic downturn, natural disasters, personal illness, or job loss, is elevated. Especially under recent global developments, which are marked by an increase in the occurrence of hazards worldwide, it is vital to quantify countries' vulnerability. The UNDRR (2020) classifies hazards as biological, environmental, geological, hydrometeorological, technological, and societal hazards. These hazards, then again, increase population growth, urbanization, environmental degradation, natural disasters, and climate change (Makoka and Kaplan, 2005). International organizations and academic scholars increasingly stress the importance of understanding hazards and risks, on the one hand, and of risk-informed decision-making and strategies to reduce these risks and hazards, on the other hand.

**In this paper, we apply an innovative methodology to identify a forward-looking (ex-ante) measure of vulnerability to poverty in El Salvador, a country marked by high exposure to natural and human hazards.** We follow an innovative approach to vulnerability developed by Gao et al. (2020), and estimate the vulnerability rate in El Salvador. The innovative approach applied in this paper follows a probabilistic understanding of vulnerability, which takes into account the average level of welfare across many periods and the deviation of welfare across these periods (that is, the variance of welfare). Studying vulnerability to poverty from an ex-ante perspective is highly relevant in the context of El Salvador. El Salvador is characterized by high risk exposure. It scores 4.7 out of 10 in the INFORM Global Risk Index 2021 and ranks 58th (DRMKC, 2021). It is especially vulnerable to natural hazards, such as tsunamis, earthquakes, and volcanos (ibid), but also faces a number of human hazards, such as high crime rates, a high population density, and one of the highest emigration rates. Given the significant number of shocks to which the population is exposed, studying vulnerability to poverty is highly relevant in the context of El Salvador.

**Using household survey data from El Salvador, we show that the country's vulnerability rate is higher than its poverty rate; our analysis also reveals important differences between rural and urban areas.** We estimate a vulnerability rate of 23.7 percent for 2019. This number is higher than the poverty rate, standing at 21.7 percent.<sup>2</sup> In addition, vulnerability patterns differ for the rural and urban populations. While the overall vulnerability rate is only slightly higher than the overall poverty rate, the rural population is especially prone to falling back into poverty. Among the rural population, 41.2 percent is affected by vulnerability to poverty, while this only applies to 13.5 percent of the urban population. The vulnerability rate in rural areas is 1.3 times the poverty rate.

**Our paper reveals that the vulnerability rate in El Salvador decreased constantly over 2016-2019, in both rural and urban areas.** Our findings demonstrate that the vulnerability rate decreased from 39.4 percent in 2016 to 23.7 percent in 2019. This is in line with recent poverty developments in the country but different from developments in the operational vulnerability measure. Operational vulnerability,<sup>3</sup> which is purely monetary, increased in El Salvador during the period under consideration, from 34.6 percent in 2000

> 2 This is the poverty rate measured by the vulnerability model applied in this paper, and not the one observed from household data. Poverty is measured in 2011-PPP-US$, and relying on the 5.5 US$/day threshold.

> 3 The “operational” definition widely used in the LAC region defines vulnerable households as those with daily incomes between $5 and $13 a day (in 2011 PPP dollars).

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