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The Distributional Impacts of Indonesia's Financial Crisis on Household Welfare: A 'Rapid Response' Methodology

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  • Jed Friedman

    (RAND Corporation)

  • James Levinsohn

    (University of Michigan)

Abstract

Analyzing the distributional impacts of economic crises is important and, unfortunately, an ever more pressing need. If policymakers are to intervene to help those most adversely impacted, then policymakers need to identify those who have been most harmed and the magnitude of that harm. Furthermore, policy responses to economic crises typically must be timely. In this paper, we develop a simple methodology to fill the order and we’ve applied our methodology to analyze the impact of the Indonesian economic crisis on household welfare there. Using only pre-crisis household information, we estimate the compensating variation for Indonesian households following the 1997 Asian currency crisis and then explore the results with flexible non-parametric methods. We find that virtually every household was severely impacted, although it was the urban poor that fared the worst. The ability of poor rural households to produce food mitigated the worst consequences of the high inflation. The distributional consequences are the same whether we allow households to substitute towards relatively cheaper goods or not. However the geographic location of the household mattered even within urban or rural areas and household income categories. Additionally, households with young children may have suffered disproportionately adverse effects.

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File URL: http://fordschool.umich.edu/rsie/workingpapers/Papers476-500/r482.pdf
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Bibliographic Info

Paper provided by Research Seminar in International Economics, University of Michigan in its series Working Papers with number 482.

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Length: 33 Pages
Date of creation: 2001
Date of revision:
Handle: RePEc:mie:wpaper:482

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Postal: ANN ARBOR MICHIGAN 48109
Web page: http://www.fordschool.umich.edu/rsie/
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References

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  1. Ravallion, Martin & Bidani, Benu, 1993. "How robust is a poverty profile?," Policy Research Working Paper Series 1223, The World Bank.
  2. Thomas, Duncan & Beegle, Kathleen & Frankenberg, Elizabeth & Sikoki, Bondan & Strauss, John & Teruel, Graciela, 2004. "Education in a crisis," Journal of Development Economics, Elsevier, vol. 74(1), pages 53-85, June.
  3. Angus Deaton & Christina Paxson, 1998. "Economies of Scale, Household Size, and the Demand for Food," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 897-930, October.
  4. Benjamin, Dwayne, 1992. "Household Composition, Labor Markets, and Labor Demand: Testing for Separation in Agricultural Household Models," Econometrica, Econometric Society, vol. 60(2), pages 287-322, March.
  5. Deaton, Angus, 1990. "Price elasticities from survey data : Extensions and Indonesian results," Journal of Econometrics, Elsevier, vol. 44(3), pages 281-309, June.
  6. Deaton, A., 1988. "Quality, Quantity, And Spatial Variation Of Price," Papers 30, World Bank - Living Standards Measurement.
  7. Deaton,Angus & Muellbauer,John, 1980. "Economics and Consumer Behavior," Cambridge Books, Cambridge University Press, number 9780521296762, December.
  8. Chaudhuri, Shubham & Ravallion, Martin, 1994. "How well do static indicators identify the chronically poor?," Journal of Public Economics, Elsevier, vol. 53(3), pages 367-394, March.
  9. Frankenberg, E. & Thomas, D. & Beegle, K., 1999. "The Real Costs of Indonesia's Economic Crisis: Preliminary Findings from the Indonesia Family Life Surveys," Papers 99-04, RAND - Labor and Population Program.
  10. Levinsphn, J. & Berry, S. & Friedman, J., 1999. "Impacts of the Indonesian Economic Crisis: Price Changes and the Poor," Working Papers 446, Research Seminar in International Economics, University of Michigan.
  11. repec:fth:michin:446 is not listed on IDEAS
  12. Case, Anne C, 1991. "Spatial Patterns in Household Demand," Econometrica, Econometric Society, vol. 59(4), pages 953-65, July.
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