Effects of Exposure to Risks on Household Vulnerability in Developing Countries: A New Evidence From Urban and Rural Areas of Nigeria

Abstract

Exposure to risk may be seen as one of the many dimensions of poverty. Household exposure to risk consequent upon different types of shocks often leads to undesirable welfare outcomes. A shock can push an already income-poor household further into poverty or drive a non-poor household below the income poverty line. Risk appears to be one of the major challenges many households face in developing economies especially in the Sub-Saharan Africa. As a result, these issues have become central in the policy agenda not only in these countries but also in the international multilateral institutions. This study examines the exposure to risks in urban and rural areas and its effect on household vulnerability to poverty in Nigeria. The study applied the framework that computes vulnerability as expected poverty on the Nigeria General Household Survey for 2015 and the cross-sectional data and three-stage feasible generalized least squares analysis were employed. Findings show that exposure to risks such as job loss, business failure, harvest failure, livestock death, dwelling demolition, increase and decrease in input and output prices, and other similar risks significantly drive households into poverty but differ across households in rural and urban areas, both in characteristics and regions. These findings suggest that social safety nets should be designed to take care of not only the current poor households but also the non-poor households who are likely to be vulnerable in the future.