This research is proposed to analyze poverty and vulnerability, and its determinants in rural Hubei. The main objectives include: 1) measuring poverty and vulnerability to poverty by household groups in rural Hubei; 2) distinguishing the determinants of poverty (transient and chronic) and vulnerability to poverty in rural Hubei; 3) suggesting policy options for government to adopt for reducing poverty and vulnerability. Data employed for analysis will be a unique panel data set of 1900 households surveyed between 2000 and 2004, from Rural Household Survey Team of the Hubei provincial Statistic Bureau. We will decompose measured household poverty into chronic and transient components, and classify the household according to their characteristics and measure each group’s chronic poverty, transient poverty, and vulnerability which we will adopt an empirical method to quantify. We will then use Censored Quantile Regression to investigate the determinants of poverty and vulnerability using panel data for rural Hubei. It is expected that the research team members, consisting of two males and three females, two seniors and three young PhD students aged 20s, will gain much experience and knowledge in analyzing and understanding poverty and vulnerability, and are able to do further and broader analysis by employing approaches established in this research project. This will certainly improve the research capacity of the individual team members and the research institution. 1. Main research questions and core research objectives Economic growth in the past two decades in China has no doubt improved living standard across the country, and analysis of poverty trends, by whatever measures, has showed a dramatic decline, especially in rural areas. However, recent years studies suggest that the speed of poverty reduction in rural China become slower. By the end of 2004, PDF created with pdfFactory trial version www.pdffactory.com there are 26.1 millions absolute poverty populations in rural China, and a large number of households hover around poverty line. Although a series of policies of ex-post poverty alleviation interventions have been implemented, poverty detection shows that there is high ratio of households falling back into poverty. Addressing the objective of poverty reduction, policies should highlight not only ex-post poverty alleviation interventions but also ex-ante poverty prevention interventions, which had been emphasized by the World Bank’s Social Risk Management framework which highlights three types of risk management strategies: prevention, mitigation and coping (Holzmann et al, 2000). It is clearly necessary to go beyond measuring poverty to cataloging of who is currently poor, how poor they are, and why they are poor. An assessment of household’s vulnerability to poverty to figure out who is likely to be poor, how poor are they likely to be, and why they are vulnerable to poverty, seems to be more important. Poverty and vulnerability (to poverty) are two sides of the same coin. Poverty is an ex-post measure of a household’s well-being. It reflects a current state of deprivation. Vulnerability, on the other hand, may be broadly construed as an ex-ante measure of well-being, reflecting not so much how well off a household currently is, but what its future prospects are (Chaudhuri, 2003). Current vulnerability likely causes future poverty. As decomposing poverty into transient and chronic poverty, a vulnerable household will run into transient poverty when it is exposed to adverse shocks, on the other hand it will get into chronic poverty for being exposed to adverse shocks and having limited long-term income generating capacity. Poverty reduction has become an implicit objective of development policy in Hubei, a PDF created with pdfFactory trial version www.pdffactory.com province in central China. Based on the above discussion, to explore vulnerability and poverty in rural Hubei, there are a few questions that need to be further explored and answered: 1) How to measure poverty and vulnerability to poverty for households in rural Hubei? 2) Who is more likely to fall into transient poverty or chronic poverty? What are the major characteristics of households in transient and chronic poverty, respectively, in rural Hubei? 3) Who is vulnerable to poverty? What are the major characteristics of households with vulnerability in rural Hubei? Do characteristics featuring households with poverty and households with vulnerability differ? 4) What are the determinants of poverty (transient and chronic) and vulnerability, respectively, for households in rural Hubei? 5) Can polices that reduce poverty also reduce the vulnerability to poverty? Which strategies shall be chosen to reduce poverty and vulnerability, respectively? Core research objectives of this research include: 1) Measuring poverty and vulnerability to poverty in rural Hubei; 2) Distinguishing the determinants of poverty and vulnerability to poverty in rural Hubei; 3) Suggesting policy options for government to adopt for reducing poverty and vulnerability? 2. Scientific contribution of the research including a short list of key references in the literature and knowledge gaps The previous studies on poverty show a transition from static poverty to dynamic poverty. Prior to the emergence of the dynamic poverty literature, economists were already concerned about the poverty decomposing and vulnerability to poverty. PDF created with pdfFactory trial version www.pdffactory.com Researchers have developed approaches to measure transient and chronic poverty (Ravallion, 1988; Morduch, 1994; Thorbecke, 1998; Hulme, 2003; Duclos et al., 2006), and to explore its determinants (Jalan and Ravallion, 1998, 2000; Yue et al., 2005). Ravallion (1988) attempted to decompose total poverty into a chronic and a transient component. Jalan et al. (1998) defined transient poverty as the poverty that can be attributed to inter-temporal variability in consumption, and distinguished transient from chronic poverty using data from rural China. Using robust semi-parametric methods, they found that households average wealth holding is an important determinant for both transient and chronic poverty, however, household demographics, education levels and health status of the household members – while important for chronic poverty – were not significant determinants for transient poverty. Yue et al. (2005) investigated chronic and transient poverty and the determinants of each component. They found transient poverty account for large proportion of total poverty observed in the poor rural area of China, and demographic characteristics of households are very important to the poverty status of households. Duclos et al. (2006), using data from 82 villages in 9 provinces of China, developed the measurement of transient and chronic by providing corrections for the statistical biases introduced. Both of transient poverty and chronic poverty reflects the ex-post poverty dynamics. Scholars have increasingly recognized that exploring vulnerability is very necessary for understanding ex-ante poverty dynamics and policy interventions. Carlo et al. (2006) announced that risk and vulnerability considerations in poverty analysis would be future directions. Researchers have developed different approaches to investigate vulnerability based PDF created with pdfFactory trial version www.pdffactory.com on different conceptual frameworks. These included approaches that use change or variability of consumption; that use the difference between expected consumption and the poverty line; that use the expected poverty; and that use the probability to fall into poverty. Coudouel and Hentschel (2000) used average income and its standard deviation to measure vulnerability. Kamanou and Morduch (2002) pointed out that if the history of shocks is a predictor of future shocks, a simple starting point for measuring vulnerability would be to compare standard deviations of consumption and income changes, and households or groups are judged to be more vulnerable if standard deviation of past consumption changes are higher. An immediate practical problem is that few data sets have a long enough time dimension to yield a reliable standard deviation for each household over time. The techniques discussed above are static in nature as no efforts were made to predict future poverty. Kamnous and Morduch (2002) further proposed a dynamic framework, and defined vulnerability in a population as the difference between the expected value of a poverty measure in the future and its current value. By defining vulnerability to poverty as expected poverty, Chaudhuri (2003) measured the vulnerability of rural China (Guangdong, Guangxi, Yunnan and Guizhou). Researchers increasingly define vulnerability as the probability to fall into poverty. The World Development Report (2000/2001) defined vulnerability as the risk that a household or individual will experience an episode of income or health poverty over time. Pritchett et al. (2000) calculated the “Vulnerability to Poverty Line” as the level of expenditures below which a household is vulnerable to poverty and implement the approach using two panel data sets from Indonesia. Ligon et al. (2003) took a utilitarian PDF created with pdfFactory trial version www.pdffactory.com approach to define vulnerability in a risky environment and construct a measure of vulnerability. Applying their measure to a panel dataset from Bulgaria in 1994, they found that poverty and risk play roughly equal roles in reducing welfare. McCulloch et al. (2003) estimated the determinants of chronic poverty and vulnerability using the data of rural Sichuan and found the determinants of chronic poverty and vulnerability appears to be similar, suggesting that policies to reduce chronic poverty will also reduce vulnerability. Zhang et al. (2006) followed Kuch (2003) for measuring vulnerability and explored whether diversificati