by Patrick Guillaumont,

Chairman of the Foundation for studies and research on international development (FERDI)

          The Economic Vulnerability Index (EVI) captures a country’s exposure and vulnerability to exogenous shocks due to its structural characteristics. It was originally designed as one of the three criteria used to identify the least developed countries, the other two being income per capita and a human capital index. EVI can also be used in other areas of development cooperation, in particular for the design of aid policies as an additional relevant criterion of aid allocation and selectivity.

        Shocks contribute to increased volatility of output growth, which lowers the average rate of growth and slows down poverty reduction. Yet, none of the usual criteria of aid allocation - the level of poverty and the quality of governance in the potential recipient countries - includes structural vulnerability.

        There are at least two main reasons to include economic vulnerability as an additional tool in ODA allocation. First, as evidenced by research works,  aid effectiveness increases when structural vulnerability is high, because aid dampens the negative consequences of shocks. Using structural vulnerability as an ex ante aid allocation criterion would lead to an immediate dampening of any given shock. This does not necessarily take place with the other policies - however useful they are - that use aid as insurance and aim at compensating for shocks only after their occurrence.

        The second main reason is given by equity considerations. If we admit that a goal of aid is to compensate for handicaps in order to promote the equality of opportunities, there is need to have a measure of structural vulnerability, a handicap to growth, as a criterion for aid allocation.