Measuring economic vulnerability: a Structural Equation Modeling approach

Ambra Altimari – Simona Balzano – Gennaro Zezza
Dipartimento di Economia e Giurisprudenza, Università degli Studi di Cassino e del Lazio Meridionale

January, 2018

Abstract: The aim of this paper is to use a multivariate approach to improve the methodology for measuring the economic vulnerability of developing countries. The official index used by the United Nations, the Economic Vulnerability Index (EVI), is a composite indicator defined as the weighted average of a set of variables measuring i) the exposure to exogenous shocks and ii) the consequences of such shocks. We propose to extend the EVI model in order to include variables measuring resilience, i.e. the ability of a country to recover after a shock has occurred, and we evaluate the Structural Equation Model approach to compute a general vulnerability index. Since we analyse data covering 98 countries and 19 years we propose a strategy for dealing with repeated SEM results.

JEL codes: C33, F68, I32

Keywords: vulnerability, resilience, partial least squares, structural equation models

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