The Aftermath of Financial Crises: A Look on Human and Social Wellbeing

Alongside its detrimental macroeconomics impacts, financial crises can have substantial negative consequences on human and social wellbeing. Employing a cross-country dataset on more than 100 banking and/or currency crises during 1981–2007, this work examines the effects of financial crises on indicators of human and social wellbeing. Through employing an event study analysis, the findings of this analysis suggest that the aftermaths of financial crises are characterized by increases in the growth rates of suicide rates, crime rates, and income inequality rates relative to their pre-crisis trajectories. Additionally, declines in the growth rates of health and educational expenditures, government welfare expenditures, and food quality and quantity intakes are common during periods immediately following financial crises. Such deteriorations are observed across different countries with income levels and also for crises that are and are not accompanied by recessions. On average, though, human and social indicators are hit harder during financial crisis events accompanied by recessions. This is especially true for crises in low- and middle-income economies in comparison to those in high-income countries. As a result, not only are financial crises directly responsible for more rapid increases in income inequality within countries; they may also be responsible for increasing inequalities of income, security, health, nutrition, and educational outcomes between richer and poorer countries. Needless to say, deteriorations in many of these fronts are often associated with persistent or permanent losses in human and social wellbeing and cannot be assumed to be simply and immediately reversed with an economic recovery. Therefore, the paper calls on the need for more concerted effort on the part of the policymakers to actively protect human and social outcomes during financial crises, rather than trying to address such losses in the aftermath of crises, because some of these losses are simply not recoverable.