CHAPTER VII – CONCLUSION AND POLICY RECOMMENDATIONS

McDonald, L. (2014) THE VULNERABILITY AND RESILIENCE OF HOUSEHOLDS IN VANUATU AND

SOLOMON ISLANDS TO GLOBAL MACROECONOMIC SHOCKS, PhD Thesis

CHAPTER VII – CONCLUSION AND POLICY

RECOMMENDATIONS

1.1. Introduction

This research thesis has provided a comprehensive quantitative assessment of the vulnerability,

and resilience, of households in Vanuatu and Solomon Islands to being pushed into poverty as a

result of global macroeconomic shocks. The major contribution of this work is that it clearly

establishes the link between the well-known vulnerabilities of Vanuatu and Solomon Islands at

a national level and households’ susceptibility to being pushed into poverty as a result.

The research also fills a key informational gap at the household level in each country through its

use of empirical data collected in a broad range of communities. It therefore provides a unique

and more detailed perspective on households’ poverty, vulnerability and resilience than can be

gleaned from either national-level statistics or existing aggregate household surveys.

A further important contribution is that the research provides a timely assessment of the

household-level effects of the recent global macroeconomic shocks. This includes the steep rises

in international food and fuel prices through 2007 and 2008 and the subsequent global recession,

known as the GEC. There is a large body of evidence that the combination of these three shocks

immiserated millions of individuals around the world. Yet, before now, there had been little

formal academic research into the impacts of these shocks in Vanuatu and Solomon Islands and

what they mean for vulnerability to future poverty.

The results of this research will therefore provide an important evidence base with which to

guide policymakers in their efforts to protect households from future shocks. Indeed, the focus

and methodology of the research directly addresses the key knowledge gaps identified by the

UN Secretary General in the wake of the crises, in order to “address the policy questions that

need answering” (United Nations, 2009).

The research specifically sought to answer the following four questions:

I. How should poverty be defined and measured in Vanuatu and Solomon Islands?

II. Which households are most vulnerable to experiencing economic and other

shocks?



III. What are the dominant coping mechanisms households in Vanuatu and Solomon

Islands use to deal with global macroeconomic shocks and how resilient are they

to such shocks?

IV. Which households in Vanuatu and Solomon Islands are vulnerable to

experiencing poverty in the future?

In answering these questions, the analysis has contributed to the understanding of households’

current well-being in Vanuatu and Solomon Islands. A new working definition of household

poverty is proposed, that of multidimensional poverty, which directly focuses on human

capabilities and functioning. This measure of poverty is well suited to the local context given its

ability to identify poverty across the dual economic structures of each country in a single

measure.

Combining information on household poverty, households’ exposure to shocks and their

responses to shocks, the analysis also sheds important light on households’ vulnerabilities – both

through an examination of the micro effects of recent global macroeconomic events as well as

by looking forward to estimate the probability that households will be tipped into poverty in the

future. It also draws attention to the ways in which households are resilient to global

macroeconomic shocks.

The results clearly indicate that despite the ready availability of environmental resources and

strong social ties, sometimes referred to as “subsistence affluence”, household poverty is an

important social challenge in Vanuatu and Solomon Islands. Households are exposed to a range

of global macroeconomic and other shocks. However, a raft of geographic and cultural factors,

varying degrees of existing poverty, as well as households’ capacity to cope with shocks, meant

that households had varying degrees of vulnerability to the effects of shocks. Nevertheless, the

upshot is that a sizable segment of the population in both countries is at risk of being tipped into

poverty in the future as a result of a shock. This illustrates that the acute vulnerability of each

country at a national level is transmitted, albeit incompletely, to households at the micro level.

Targeted polices will therefore be needed to enhance households’ future well-being prospects

by reducing the sources of their vulnerability and strengthening their resilience to shocks.

The remainder of the chapter is structured as follows: Section 7.2 provides a summary of the

overall findings, organised according to the research questions, while Section 7.3 proposes six

policy recommendations based on the evidence gathered in this research. Section 7.4 then



discusses the limitations of the study, Section 7.5 discusses areas for future research and Section

7.6 concludes.

1.2. Summary of findings

1.2.1. How should poverty be defined and measured in Vanuatu and Solomon

Islands?

Insofar as vulnerability refers to the likelihood of experiencing poverty, it is important to first

articulate what poverty means in the context of Vanuatu and Solomon Islands, and then measure

its amount and incidence using household survey data. Chapter 3 therefore examines poverty

through the lens of the nascent, though well-known, MPI. This is a direct measure of well-being

that incorporates information on households’ actual levels of deprivation across the three

dimensions of health, education and living standards. This marks the first time that the MPI is

reported for Solomon Islands and the first time that the measure has been reported at the sub-

national level in either country. The chapter also makes a specific contribution to

multidimensional poverty measurement by tailoring the MPI to suit the unique characteristics of

the Melanesian context. The resultant MMPI includes a fourth dimension, “access”, which

accounts for households’ restricted access to essential services as well as the importance of the

environmental and social resources.

The results show that, in aggregate, the prevalence of poverty is generally higher in Solomon

Islands than in Vanuatu. However, in both countries severe poverty is modest. The results also

indicate that poverty has a distinct geographic distribution. When communities are arranged

according to their remoteness, a distinctive “U-shaped” curve of poverty emerges. On one side

of the curve sit the urban squatter settlements, which are renowned for their material deprivation,

while at the other end of the spectrum sit geographically isolated rural communities, which are

deprived on account of their limited ability to generate income and restricted access to essential

services.

The important value-added of multidimensional poverty indices in Vanuatu and Solomon Islands

is therefore their ability to capture these distinct aspects of household poverty in a single

measure. This stands in contrast to the prevailing national assessments of basic needs poverty in

each country, which indicate that household poverty is skewed toward urban areas.



Importantly, too, the results indicate that rural areas are far from monolithic. The lowest rates of

poverty were observed in communities that were rural in character, yet with good transport links

to larger markets. These communities, such as Hog Harbour in Vanuatu and GPPOL villages in

Solomon Islands appear to be in a Melanesian “sweet spot”: situated at the juncture of so-called

“subsistence affluence” and interconnectedness with larger and more diversified markets. In

addition to increasing the returns from agricultural production, such access encourages

households to diversify their livelihood strategies beyond subsistence production, as well as

decreasing the economic distance to essential services such as hospitals and schools.

1.2.2. Which households are most vulnerable to experiencing economic and

other shocks?

A household’s exposure to shocks is a critical determinant of its vulnerability. Chapter 4

therefore specifically focuses on households’ exposure to recent global macroeconomic and

other shocks. The results indicate that households in Vanuatu and Solomon Islands experienced

an array of shocks; in congruence with the fact that both countries are renowned for their

exposure to exogenous shocks.

Most households indicated that they experienced the effects of the recent global macroeconomic

shocks. Indeed, households were almost universally exposed to the adverse effects of rises in

international commodity prices. In large part this reflects the fact that monetisation is a now an

entrenched characteristic throughout Melanesia and almost all households, irrespective of their

location, use cash to pay for basic necessities; including imported food or fuel. This provides a

direct link between households’ consumption and volatile international commodity markets.

In contrast, few households indicated that they experienced the positive economic effects

associated with rising agricultural prices, despite agricultural production being a dominant

livelihood. The implication is that commodity price shocks, in aggregate, cause households’

terms of trade to deteriorate – providing a micro-level reflection of the terms-of-trade effects

observed at the macro level in each country (see Chapter 1).

Households’ experiences of the GEC tended to be segmented along geographic lines reflecting

the dual economic structure of each country. Weakening labour markets, which is a key way that

the GEC was assumed to manifest at the household level, were generally limited to households

in urban squatter settlements where wage income tends to dominate as the source of livelihood



and rural communities with a direct link to agricultural exports. In contrast, most rural

communities were insulated from the worst effects of the GEC.

A key implication of this analysis is that while urban households are presently exposed to an

array of global macroeconomic shocks, structural factors provide many rural households with

insulation from adverse shocks to global demand. However, as rural areas continue to develop

economically this layer of separation between rural households and the world economy is likely

to be progressively eroded. Therefore while economic development will increase prosperity it

will also increasingly expose households to global macroeconomic shocks. How households

manage the effects of economic shocks, both in urban and rural areas, will therefore need to

become an area of increasing focus of policymakers.

1.2.3. What are the dominant coping mechanisms households in Vanuatu and

Solomon Islands use to deal with global macroeconomic shocks and how

resilient are they to such shocks?

Chapter 5 specifically focuses on the household-level effects of the recent global macroeconomic

shocks in Vanuatu and Solomon Islands. It catalogues the dominant coping mechanisms

households used to manage the effects of the shocks. Using both changes in households’

disposable income and an episode of food insecurity as the relevant measures of well-being, the

analysis also identifies those households that were adversely affected (that is, were vulnerable)

and those that were largely unaffected (that is, were resilient). The analysis then determines

which household characteristics and coping mechanisms were effective in providing households

with resilience from these adverse effects. The rationale is that households’ experiences of past

global macroeconomic shocks provide important lessons that can be used to guide policies to

prevent vulnerability to future shocks.

The dominant coping mechanisms households used to manage the effects of the shocks are

broken into five main categories. These include: (i) using locally available horticultural and

marine resources as a substitute for consumption as well as a source of income; (ii) increasing

labour supply (though weak labour demand meant that much of this spare labour was absorbed

into informal markets); (iii) adjusting expenditure patterns (by looking for locally available

substitutes as well as an outright reduction in expenditure); (iv) utilising informal social

networks as a form of insurance; and (v) selling livestock as a form of counter-cyclical income

management. Much less prominent was the utilisation of financial services.



In general, better educated and wealthier households and those with access to employment were

generally the most resilient to the shocks. Female-headed households were vulnerable to

experiencing a fall in disposable income while households in urban squatter settlements were

particularly vulnerable to experiencing food insecurity. Cutting back on food intake and reducing

church tithes were also strongly associated with vulnerability to experiencing food insecurity.

Coping mechanisms that directly affected households’ cash flow, such as expenditure

adjustments and increasing labour supply, were generally associated with avoiding a fall in

disposable income during the shock period. However they were largely ineffective in preventing

an episode of food insecurity. This suggests that while changes in spending patterns can help

households satisfy their immediate nominal budget constraints in the face of a shock,

maintaining real levels of income may be more important from the perspective of household

resilience.

A key result of the analysis was the centrality of the garden and informal social networks in

households’ risk management decisions. Where available, almost all households increased their

use of the garden following a shock, which was effective in providing resilience from a fall in

disposable income. In addition, informal support structures provide an important redistributive

function that is not available in a formal sense.

Yet it is also clear that neither of these local resources fully insures households from the adverse

effects of shocks. In crowded urban squatter settlements, where available cultivatable land is

limited, some households do not have access to gardens. In addition to alienating these

households from an important food and income source, the lack of a garden is forcing many to

resort to other mechanisms to cope with shocks. At its most extreme this includes destructive

coping mechanisms such as reducing the amount of food consumed as well as reducing outlays

on health and education. Moreover, informal social insurance systems are coming under

increasing strain. Roughly the same percentage of households that indicated they increased their

use of informal support systems also indicated that they withdrew from the system in some way

because it was becoming overly onerous. Given the importance of the gardens and social

networks to households in both Vanuatu and Solomon Islands it is imperative that the social

protection policy regime include ways to address each of these issues.



1.2.4. Which households in Vanuatu and Solomon Islands are vulnerable to

experiencing poverty in the future?

Bringing together the evidence on household poverty, shock experiences and responses to past

shocks from each of the previous chapters, Chapter 6 looks forward and estimates households’

vulnerability to experiencing future poverty. This represents the first time that the incidence,

location and severity of vulnerability to poverty has been identified in Vanuatu and Solomon

Islands.

The results indicate that there is a clear, but incomplete, link between observed poverty and the

threat of future poverty in Vanuatu and Solomon Islands. Headcount vulnerability rates tended

to be highest where headcount poverty rates are high. This results in a “U-shaped” geographical

distribution of headcount vulnerability, with urban squatter settlements and the most

geographically distant communities the most vulnerable and rural, yet well-connected

communities the least vulnerable. However, in almost all communities surveyed the prevalence

of vulnerability was greater than that of poverty. This is broadly the case when poverty was

measured in terms of either the MPI or MMPI. It is also consistent with the general findings of

the empirical literature that while assessments of poverty provide an important perspective of

current well-being, their static nature means that they are incomplete as an indicator of the future

incidence of poverty.

The results also show that a substantial proportion of estimated vulnerability, almost four-fifths,

stems from excess volatility in households’ expected well-being – that is, they are vulnerable

because of their inordinate exposure to risk. This confirms that poverty in Vanuatu and Solomon

Islands is, like elsewhere, a stochastic phenomenon. It also illustrates the important link between

the well-known vulnerabilities of Vanuatu and Solomon Islands at the national level and

household-level vulnerability. The remaining vulnerability stems from chronic factors, which

are most prominent in those communities where poverty is already high. Indeed, the capital

cities, in particular, have a unique combination of chronic poverty and an expectation of

increasing inequality – with expected poverty estimated to be more severe and distributed

amongst a relatively narrow cohort of households. This further underscores the importance of

poverty-prevention policies in urban squatter settlements.

Holding a households’ location constant, being wealthier, better educated and employed is

associated with reduced vulnerability. Indicators of traditional Melanesian wealth (including,



inter alia, ownership of livestock, land ownership and social capital) were also important in

reducing the volatility of households’ expected well-being. Female-headed households were

more vulnerable as were larger households and households with greater dependency ratios.

Households that compromised their human capital by reducing their food intake are also more

vulnerable to poverty in the period ahead.

1.2.5. Comparing household vulnerability and resilience in Vanuatu and

Solomon Islands

An additional dimension of this research was to compare household vulnerability and resilience

in two countries that, on the face of it, have broadly similar characteristics yet have had divergent

economic performances in recent years. While Vanuatu was one of the stand-out economic

performers among PICs in the first decade of the millennium, Solomon Islands stagnated

economically; in part reflecting the hangover of destructive ethnic tensions.

The results indicate that despite some minor differences in the aggregate rates of headcount

poverty and vulnerability, the dynamics of households’ vulnerability, and resilience, to global

macroeconomic shocks in each country were broadly similar. In both countries the highest rates

of poverty and vulnerability were located in urban squatter settlements as well as geographically

distant communities. Both countries also have communities located in a geographical “sweet

spot” with the access to environmental resources and strong social ties, yet with good access to

central markets.

In general these similarities most likely reflect a combination of the similar dualistic economic

structures of each country and the comparable geographic, cultural and historical characteristics.

Both countries are archipelagic and spread across numerous islands, have largely rural

populations and a long tradition of informal agricultural production and strong social networks.

In addition, both countries have rapidly expanding urban centres, with migrants settling in

overwhelmingly poor informal settlements.

The implication of the overall similarities in the results between Vanuatu and Solomon Islands

is that the policy prescriptions presented below are likely to be applicable in both countries.

1.3. Policy recommendations

The unavoidable reality for both Vanuatu and Solomon Islands is that, as highly trade-exposed

SIDS in a remote and geographically volatile region, both countries are likely to remain acutely



exposed to the effects global macroeconomic volatility and natural disasters for the foreseeable

future. Moreover, the evidence of households’ poverty and vulnerability to shocks, including

episodes of food security, contained in this research should dispel any notions that “subsistence

affluence”, and any attendant insulation it provides from exogenous shocks, is universally

enjoyed by households in Vanuatu and Solomon Islands.

There is, therefore, an imperative for domestic policymakers and international donors to devise

an effective suite of policies, based on sound evidence, that can improve households’ economic

prospects. This can be achieved by minimising households’ vulnerability to future adverse

shocks, in particular future global macroeconomic volatility, and leveraging the inherent

strengths of the local context in order to maximise households’ resilience.

The following six recommendations are therefore presented as a proactive, integrated and

mutually-reinforcing policy framework. Each recommendation is accompanied by some specific

dot points that articulate practical steps that policymakers can take. They aim to shift a large

share of the burden of managing risk away from individual households, and to directly support

the most vulnerable households through the direct transference of resources and the provision of

merit goods. They are also geographically targeted reflecting the results in this research.

Together these policies can enhance the prospects for future well-being of individual Ni-Vanuatu

and Solomon Islanders. By removing the constraints associated with household-level

vulnerability, unlocking human capital and fostering greater entrepreneurship, the policy

framework can help eliminate the spectre of poverty traps and increase multidimensional well-

being. They may also allow households to take advantage of positive shocks. Importantly,

insofar as household-level resilience is acknowledged as being integral to national-level

resilience (see Chapter 1), successfully improving the ability of households to manage risk has

the potential to ignite a virtuous cycle that will assist each country in the pursuit of its national-

level policy goals.

1.3.1. Increase resilience to price shocks by reducing households’ dependence

on imported food and fuel

Chapter 4 shows that recent international food and fuel price shocks were passed through almost

universally to households in Vanuatu and Solomon Islands. Chapter 5 then showed that a sizable

proportion of households were adversely affected by these shocks. That households were

generally exposed to food and fuel price rises is consistent with the generally high dependence



of PICs at a national level to imported food and fuel. Policymakers should therefore look for

ways to strengthen households’ resilience to adverse price shocks across both urban and rural

areas by reducing households’ dependence on imported food and fuel.

• Public education campaigns should encourage households to maintain a balanced diet

with a high proportion of locally-grown foods. A substitution away from relying on

imported staple foods such as rice and packet noodles and toward locally-grown tubers,

for instance, would decrease households’ vulnerability to future volatility in

international food prices.

• The development of additional local marketplaces in urban areas could be a key step to

increasing the accessibility of locally grown food and also increasing household

incomes.

Rather than being a policy of food import substitution, per se, this policy is designed to more

effectively take advantage of a key comparative advantage of each country by increasing the

utilisation of the abundant fertile land and removing barriers, both normative and economic, to

accessing organic and nutritious locally-grown foods.

Given the lack of locally available fuel substitutes, increasing households’ resilience to fuel price

shocks is somewhat more challenging.

• In the short term, regionally-coordinated bulk fuel purchases could help ameliorate

some of the price pressure associated with high costs of transport.

• Over the longer-term policymakers should look to reduce households’ dependence on

imported fuels through the development of innovative renewable energy projects. At a

macro level, governments can commence planning a transition away from oil-based

electricity production in towns and a switch to alternative base-load energy, such as a

combination of geothermal, wind and solar. At a micro level, local governments and

international donors should also invest in programs that introduce households to

decentralised renewable energy sources for both their lighting and transport needs.

1.3.2. Strengthen access to land and gardens in urban areas

The research has demonstrated that the garden is a fundamental source of resilience for

households in Solomon Islands and Vanuatu. In addition to being the cornerstone of the local

cultural context, Chapter 5 showed that the garden is a central feature of the way households



cope with shocks and is effective in helping households avoid a fall in their disposable income.

In calculating the MMPI, Chapter 3 shows that communities with better access to the natural

environment have greater levels of food security. However, many households in urban squatter

settlements, where access to land is restricted, are alienated from gardens. The consequence is

that many households in these areas have become dependent on cash incomes to purchase food,

including imported food, which in turn increases their exposure to international price shocks

(Chapter 4). The lack of access to gardens also forces households into using alternative (and

sometimes outright destructive) measures for coping (Chapter 5).

Given the importance of having access to a garden as a source of resilience during crises,

policymakers should seek ways to strengthen households’ access to land in urban areas.

• Support should be provided for urban gardens and land segregation schemes, as well as

programs that encourage food cultivation in the available space around homes in urban

areas, such as potted and hanging gardens.

• Policymakers should also look to increase agricultural productivity. The provision of

tools, seed banks and agricultural education could help increase the amount of food

produced by the stock of available land.

• A one-off legal land allocation could also be negotiated with land owners in squatter

settlements, in order to free settlers from the risk of eviction and give them a permanent

stake in their surrounds.

1.3.3. Experiment with formal social protection schemes

The findings from this research provide a strong case for the establishment of a formalised social

protection policy regime in Vanuatu and Solomon Islands. This is particularly important in the

urban squatter settlements of both countries. Across the communities surveyed, these settlements

were observed to have some of the highest headcount rates of poverty (Chapter 3) and the highest

rates of headcount vulnerability, with a considerable amount of vulnerability stemming from

chronic factors (Chapter 6). Moreover, Section 6.4.5 showed that these settlements are most

vulnerable to widening inequality in the future. While informal social insurance systems are

important in providing households with resilience, the findings also indicate that they are unable

to cover everyone and are fraying at the margin. Further, people require in urban areas require

money in order to meet their basic needs.



A formalised social protection regime should combine financial assistance in urban settlement

areas with the direct provision of merit and public goods across both urban and rural areas and

rural economic development (see below). In each case, the social protection regime should target

the characteristics of the most vulnerable households. Chapters 5 and 6 identified that female-

headed households, uneducated households and the chronically poor were the most vulnerable

to experiencing poverty. In contrast, households’ wealth, education and access to stable incomes

each provide households with a better chance of avoiding the worst effects of shocks. Indeed,

the broad similarities between the characteristics of vulnerability with other developing countries

means that policymakers should also heed lessons from countries at a similar stage of

development for what social protection policies might work in the local context.

• In the first instance, conditional cash payments could look to target the harmful coping

mechanisms of the poorest and most vulnerable households in urban squatter

settlements. This could include the provision of vouchers for basic school-related

expenditure (including uniforms, books, bus fares and lunches), vouchers for local food

purchases from authorised sellers, as well as direct cash transfers, conditional upon

school attendance or health checks.

• The direct provision of merit goods, such as schools and health clinics and public goods

including marketplaces, drainage and transport infrastructure, should also be a priority

under such a scheme. This could be complemented with a stated longer-term goal to

universalise access across each country to an essential package of health services and

lower-secondary school education.

• In addition, policymakers should look for ways to increase the capacity of households

to earn incomes. This can involve direct job creation through public work schemes as

well as targeting specific pro-poor private sector activity. Employment programs

should be designed with the centrality of informal market peddling firmly in mind. To

that end, national governments and donors should work with municipal councils and

provincial governments to construct additional marketplaces close to population centres

as well as reducing the cost of using them through fee exemptions.

• Policymakers should also enlist local community groups, such as sporting and music

groups as well as churches, to monitor the welfare of households in their communities.

Signs that a household is reducing its food intake or reducing church tithes could

provide policymakers with a useful early-warning indictor of more serious

vulnerability.



1.3.4. Encourage rural economic development through improved access to

markets

Crucially, any implementation of a formal social protection system must be complemented by a

focus on rural economic development, lest it strengthen the motivation to migrate to towns and

exacerbate poverty and inequality.

This research illustrates the central importance of good transport links to the prosperity of rural

communities. Well-functioning transport networks were shown to be an important determinant

in the rate of headcount poverty in rural areas (Chapter 3) as well as headcount vulnerability

(Chapter 4). In other words, the incidence of both poverty and vulnerability increases in line with

the economic distance from major markets. The comparison of ostensibly similar communities

with different transport access to central markets such as Hog Harbour in Vanuatu (where

transport links are excellent and poverty and vulnerability is amongst the lowest in the sample)

and Malu’u in Solomon Islands (where the road link is dilapidated and poverty and vulnerability

is among the highest) is a salient example of the importance of well-functioning transport

infrastructure to a community’s prosperity.

Reducing economic distance and making investments to upgrade transport infrastructure can

increase prosperity and reduce vulnerability, by encouraging the diversification of household

incomes and facilitating trade. It can also foster the development of an indigenous transport

industry and may also encourage greater tourist arrivals. Moreover, effective transport can

remove a key barrier preventing agricultural producers increasing from their net sales and

improve the prospects that they will benefit financially from strong commodity prices.

Strengthening the economic opportunities in rural areas would also undermine one of the key

motivations of individuals migrating to urban areas.

However, the direct provision of transport infrastructure is not likely to be feasible in all contexts.

In archipelagic countries such as Vanuatu and Solomon Islands roads are obviously of limited

utility, save for communities on islands that are well populated and with an urban centre. The

particularly challenging terrain and weather also means that road construction is expensive for

resource-constrained governments and so may not be an option beyond those currently in



operation. Nor is it likely to be economic to introduce competition for some smaller shipping

routes. Therefore strengthening transport links is likely to be best achieved through a suite of

policies.

• Where applicable, governments and donors can directly invest in building roads and

improving port infrastructure.

• A greater focus should be given to the better management of existing transport

networks. For instance, governments can encourage private shipping companies to

provide regular and reliable services on key strategic routes by competitively tendering

for government support.

• Education programs in rural areas could encourage agricultural producers to

collectivise into sellers cooperatives to wield more market power in negotiations with

distributors on existing shipping routes.

• Subsidies and grants could also be given to rural collectives to purchase their own

transportation.

1.3.5. Improve access to quality education

The results of this research clearly indicate that irrespective of their location households with

well-educated members are less vulnerable and have a greater capacity to withstand the effects

of shocks. Educated households were found to be relatively less exposed to shocks (Chapter 4)

and relatively less vulnerable to the adverse effects of shocks (Chapter 5). Moreover, education

improves households’ well-being prospects – thus decreasing their vulnerability to poverty

(Chapter 6). The importance of education is likely to reflect the combination of the increased

earning capacity of more educated individuals as well as their greater capacity to adapt to

changing circumstances.

While primary school education is now officially fee-free in both Vanuatu and Solomon Islands,

families still have to meet the costs of materials, uniforms and transport, and schools sometimes

impose their own levies. Each of these co-payments is an additional barrier to children’s

education.

• In order to foster education policymakers should first ensure that primary education is

actually universal. Thereafter, a medium-term goal should be established to expand

universal coverage to lower secondary school.



• An important complement to improving education outcomes is that there is a

concomitant increase in the number of jobs requiring more highly-skilled labour. In this

sense, a strong industry policy focused on removing barriers to business investment,

encouraging both domestic investors and foreign direct investment could give educated

school leavers a chance to improve their well-being.

• Policymakers should also foster the development of an alternative, technically-oriented,

education system. Equipping young people with practical skills (for example, in fields

such as construction, auto-mechanics and bookkeeping) will increase their productivity

and, in turn, their incomes. It will also decrease their reliance on finding employment

with an established business since they can create their own enterprises.

• The extension of agricultural education in rural areas could also help improve

agricultural productivity and thus increase food supply and rural incomes.

1.3.6. Greater financial inclusion

Chapter 5 showed that households were often forced to adjust their levels of consumption in

order to satisfy their nominal budget constraints in the face of rising food and fuel prices.

Policymakers should therefore focus on ways to assist households maintain their real

consumption levels during shocks. To that end, there should be a focus on ensuring households

have access to consumption-smoothing mechanisms such as savings and credit. However,

simply increasing access to financial services is likely to be insufficient. Also important is that

they are utilised. Chapter 5 also showed that while a good proportion of households have savings

accounts, particularly in urban areas, few households used them during an adverse shock.

• Policymakers should look therefore for ways to improve households’ access to financial

services, in particular savings accounts.

• Financial literacy training will also be important to ensure that individuals have the

skills and the understanding necessary to budget and manage their money.

Better financial inclusion also has the potential for positive spill over benefits in other areas of

social protection identified in this chapter. Savings can act as a useful commitment device for

households to lock income away to ensure that there are sufficient funds to pay for important

expenditures when needed, such as school fees. Savings could even facilitate the effectiveness

of the broader informal social insurance system by helping individuals save for important social

expenditures such as custom ceremonies, funerals and weddings; as well as ensuring that



resources are available to provide support to members of the network when needed. Better

savings practices could also help provide the collateral required for accessing credit (particularly

business credit) and help overcome some of the information asymmetries that can inhibit bank

lending.

1.4. Limitations of the study

As discussed in each of the empirical chapters this study has a number of limitations of which

the reader should be aware. Most of these relate to issues of data quality – a perennial issue with

collecting empirical data in environmentally-challenging and resource-constrained settings. One

particular issue is that the analysis relies on self-reported data of households’ exposure to shocks

and responses to shocks. Where possible, steps were taken to ensure the veracity of these data,

by triangulating them with secondary sources (where available) as well as checking for internal

consistency. However the risks of recall bias cannot be completely eliminated.

Moreover, the fact that the study relies on cross-sectional data presents some important

challenges. Using only a snapshot in time makes examining the dynamics of past shocks

difficult. Variables with an inter-temporal dimension were therefore included in the household

survey to overcome these issues. Overcoming issues of endogeneity and determining the

directional causality of key relationships (such as households’ coping responses and well-being)

is also a challenge. Various attempts were made throughout the analysis to control for

endogeneity. However, time-series data would be a key innovation in future studies of

households’ vulnerability and resilience to past shocks. Such data could, for instance, show

whether a particular coping response of households was associated with heightened vulnerability

because it was ineffective, or because it was a response used by particularly vulnerable

households. It would also provide information on the long-term effects of coping.

The use of cross-sectional data also meant that a number of simplifying assumptions need to be

used in order to estimate vulnerability to future poverty. This is a common problem of analyses

of household vulnerability in developing countries owing to the dearth of panel data sets.

Longitudinal information on households’ characteristics, their exposure to shocks and attempts

to cope with shocks would therefore make a valuable contribution to further refining the

understanding of households’ vulnerability and resilience in Vanuatu and Solomon Islands. In

the absence of a full panel data set, a time-series analysis of households’ coping behaviour during



shocks would provide researchers with a better sense of which coping variables to include in

cross-sectional models of household vulnerability.

The analysis also abstracts, to a large extent, the importance of intra-household dynamics. By

focusing on the household as the key referent of the research a number of important issues, such

as the extent to which resources are allocated and power distributed within the household, were

ignored. Moreover, there is an implicit assumption that the resources received by the household

are divided equally amongst the members. It is well acknowledged that this is rarely the case

and that important disparities exist within households – with women, the young, the disabled

and the elderly relatively less empowered within households and therefore less able to command

a fair share of resources. Throughout the research women were found to be more acutely

vulnerable than men, while women were also bore a greater burden of the adjustment to shocks

than men. This was touched on in the discussion in Section 5.3.3 though it was not a focus of

this research.

In addition, the fact that the research only focused on six communities in each country also

means that national-level assessments of poverty and vulnerability should be treated with some

caution. In the absence of any information on the way household data should be weighted, simple

arithmetic averages of the six communities were deemed to be sufficient for the purposes of

presenting national estimates in this analysis. A broader, more nationally representative sample

would therefore increase the robustness of these national estimates.

1.5. Areas for further research

This analysis uses empirical household-level data to provide, for the first time, an overview of

the issues that are important in determining the vulnerability and resilience of households in

Vanuatu and Solomon Islands to the impacts of global macroeconomic shocks.

Further work should look to drill more deeply into a number of the important issues identified

in this research. In particular, research should focus on the refinement of multidimensional

poverty measures to suit the local Melanesian context. A more accurate measure of poverty can

better guard against the misallocation of social protection resources as well as underpin more

robust vulnerability analyses. Further refinement of the methodology to calculate the MMPI

would be a good step in this direction.



Given the clear importance of economic geography in determining well-being, future work

should look to combine a household-level analysis of well-being with a greater focus on mapping

the geographical distribution of poverty. Such an approach could facilitate the better

geographical targeting of social protection policies and also shed important light on within-

community disparities in well-being.

Research should also examine the effectiveness and efficiency of various mechanisms in

providing households with resilience from shocks. Better understanding of the specific

mechanics underpinning informal markets, the ongoing integrity of informal safety nets in the

face of rapid monetisation and urbanisation as well as exploring ways to increase financial

inclusion could each better inform the design of the social protection policies proposed in

Section 7.3 above. In addition, further research should bring a stronger gendered lens to

household vulnerability and resilience given the apparent unique vulnerabilities of women in the

local context. Trials could be arranged, for example, that place women at the centre of the social

protection policy framework. Further, marketplaces could be made attractive and safe for women

through the provision of proper improved sanitation and lighting, financial services and child

care.

Lastly, research into the longer-term effects of households’ coping mechanisms could also show

whether households are coping with current shocks at the expense of weakening their human

capital and increasing their vulnerability to future shocks.

1.6. Conclusion

Since the manifestation of the recent global macroeconomic shocks studied in this research, the

extreme cyclicality of the world economy has continued apace. As the global economy recovered

from the effects of the slowdown, commodity prices once again rose strongly, with food and fuel

prices returning to around historically elevated levels. Moreover, the Organisation for Economic

Cooperation and Development (OECD) note that the global economy continues to face some

important headwinds, including concerns over bank solvency in Europe, broad deleveraging in

financial and government sectors and the threat of a double-dip recession in a key developed

countries. The risks of a new major contraction in global output cannot be ruled out (OECD,

2012).

Against this backdrop are human consequences of shocks. The ripples of global economic shocks

do and will continue to stretch outwards and affect the SIDS of Vanuatu and Solomon Islands.



The conclusions of this research illustrate why local policymakers and international aid donors

should be interested in understanding the vulnerability and resilience of households in

developing countries to global macroeconomic shocks, and particularly in Vanuatu and Solomon

Islands: two countries that are renowned for being among the most vulnerable in the world.

As this research has shown, households in Vanuatu and Solomon Islands live unique lives in

distinctive environments. While undoubtedly exposed to an array of exogenous economic shocks

and natural disasters – along with the resultant impacts of poverty and vulnerability to poverty

– the combination of environmental resources, strong community ties and the general

resourcefulness of households means that there is generally a range of mechanisms at

households’ disposal that provide resilience from the effects of shocks. In addition, households

that are wealthier, better educated and with a relatively stable income source are equipped to

withstand the effects of shocks.

In order to reduce households’ vulnerability and strengthen their resilience to the impacts of

future shocks, a coherent and integrated social protection policy framework must be

implemented that builds upon, rather than weakens, the unique assets of the local context. To the

extent that household–level resilience underpins national-level resilience, such a policy

framework should be viewed as an investment that paves the way for more stable and prosperous

national economies.

Importantly, households’ vulnerability is not insuperable; with accurate information on the

transmission of previous shocks, as well as the proximate causes of vulnerability (and the

efficacy of resilience mechanisms) policies can be designed and targeted to reduce vulnerability

and strengthen resilience. Moreover, understanding the existing risk-management pathways that

households use during shocks can facilitate the rapid roll-out of interventions during future

crises. Thus, by both broadening and deepening the understanding of households’ vulnerability

and resilience in Vanuatu and Solomon Islands, it is hoped that this research will help shape the

policy landscape, to mitigate the risk of poverty-prevention resources being misdirected for want

of better evidence and, ultimately, improve the lives of Ni-Vanuatu and Solomon Islanders.



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CHAPTER VII – CONCLUSION AND POLICY RECOMMENDATIONS

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Transcript of CHAPTER VII – CONCLUSION AND POLICY RECOMMENDATIONS