An Economic Vulnerability Index: Its Design and Use for International Development Policy

In response to a need expressed by the UN General Assembly, an Economic Vulnerability index (EVI) has been defined by the Committee for Development Policy. The present paper, which refers to this index, first examines how a structural EVI can be designed for low-income countries in particular. It recapitulates the conceptual and empirical grounds of the index, considers the structure of the present EVI, its sensitivity to methodological choices with respect to averaging, as well as possible improvements in this regard, and briefly compares the levels and trends of EVI in various country groups, using a new database from a “retrospective EVI”. The paper examines how the EVI can be used for international development policy, underlining two main purposes. The first—the purpose for which the EVI was initially designed—is the identification of the least-developed countries (LDCs) that are eligible to receive some preferential treatment in aid and trade matters. The EVI, in addition to income per capita and human capital, is one of three complementary criteria a country needs to meet in order to be designated as an LDC, and consequently it cannot be the sole criterion for countries wishing to avoid graduating from the LDC list. Second, the EVI can be used, in addition to other traditional measures, as a criterion for aid allocation between developing countries. It is argued that such an inclusion is legitimate for reasons of both effectiveness and equity. The two purposes are presented as complementary.