Economic Vulnerability and Resilience to External Shocks: A Cross Country Study

Abstract

In today's integrated world, countries are vulnerable not only to internal imbalances, but also to external shocks, which are much beyond the control of any host government. The Asian financial crises, the sub-prime crises, and the EU crises all showed the effect of the contagion and that the loss due to this risk was not only large, but also, the frequency of the shocks have increased. It is important for countries to measure their vulnerabilities to external shocks and assess and put in place important policy decisions that would increase the resilience to these shocks in order to prevent these shocks ending up in full-blown crises. The paper builds on the vulnerability and resilience indices developed so far by proposing modifications to the existing ones based on economic and social indicators. The paper also adds to the existing research by extending the scope of the study to arrive at the vulnerability and resilience scores at a global level.