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Protecting the poor from macroeconomic shocks

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Author Info

  • Ferreira, Francisco
  • Prennushi, Giovanna
  • Ravallion, Martin

Abstract

Many developing countries faced macroeconomic shocks in the 1980s and 1990s. The impact of the shocks on welfare depended on the nature of the shock, on initial household and community conditions, and on policy responses. To avoid severe and lasting losses to poor and vulnerable groups, governments and civil society need to be prepared for a flexible response well ahead of the crisis. A key component of a flexibly responsive system is an effective permanent safety net, which will typically combine a work-fare program with targeted transfers and credit. Once a crisis has happened, several things should be done: 1) Macroeconomic policies should aim to achieve stabilization goals at the least cost to the poor. Typically, a temporary reduction in aggregate demand is inevitable but as soon as a sustainable external balance has been reached and inflationary pressures have been contained, macroeconomic policy should be eased (interest rates reduced and efficient public spending restored, to help offset the worst effects of the recession on the poor). A fiscal stimulus directed at labor-intensiveactivities (such as building rural roads) can combine the benefits of growth with those of income support for poor groups, for example. 2) Key areas of public spending should be protected, especially investments in health care, education, rural infrastructure, urban sanitation, and micro-finance. 3) Efforts should be made to preserve the social fabric and build social capital. 4) Sound information should be generated on the welfare impacts of the crisis.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2160.

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Date of creation: 31 Aug 1999
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Handle: RePEc:wbk:wbrwps:2160

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Related research

Keywords: Labor Policies; Public Health Promotion; Economic Theory&Research; Environmental Economics&Policies; Health Economics&Finance; Health Economics&Finance; Health Monitoring&Evaluation; Environmental Economics&Policies; Poverty Assessment; Economic Theory&Research;

References

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  1. Easterly, William & Fischer, Stanley, 2000. "Inflation and the poor," Policy Research Working Paper Series 2335, The World Bank.
  2. Lanjouw, Peter & Ravallion, Martin, 1998. "Benefit incidence and the timing of program capture," Policy Research Working Paper Series 1956, The World Bank.
  3. Blejer, Mario I & Guerrero, Isabel, 1990. "The Impact of Macroeconomic Policies on Income Distribution: An Empirical Study of the Philippines," The Review of Economics and Statistics, MIT Press, vol. 72(3), pages 414-23, August.
  4. Decaluwe, B. & Patry, A. & Savard, L. & Thorbecke, E., 1999. "Poverty Analysis Within a General Equilibrium Framework," Cahiers de recherche, Université Laval - Département d'économique 9909, Université Laval - Département d'économique.
  5. Bourguignon, Francois & de Melo, Jaime & Morrisson, Christian, 1991. "Poverty and income distribution during adjustment: Issues and evidence from the OECD project," World Development, Elsevier, Elsevier, vol. 19(11), pages 1485-1508, November.
  6. Thorbecke, Erik, 1991. "Adjustment, growth and income distribution in Indonesia," World Development, Elsevier, Elsevier, vol. 19(11), pages 1595-1614, November.
  7. Francisco H. G. Ferreira, 1995. "Roads to equality: wealth distribution dynamics with public-private capital complementarity," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 19368, London School of Economics and Political Science, LSE Library.
  8. Fajnzylber, Pablo & Lederman, Daniel & Loayza, Norman, 2002. "What causes violent crime?," European Economic Review, Elsevier, Elsevier, vol. 46(7), pages 1323-1357, July.
  9. Datt, Gaurav & Ravallion, Martin, 1998. "Why Have Some Indian States Done Better Than Others at Reducing Rural Poverty?," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 65(257), pages 17-38, February.
  10. Lipton, Michael & Ravallion, Martin, 1995. "Poverty and policy," Handbook of Development Economics, Elsevier, in: Hollis Chenery & T.N. Srinivasan (ed.), Handbook of Development Economics, edition 1, volume 3, chapter 41, pages 2551-2657 Elsevier.
  11. Ravallion, Martin, 1999. "Appraising Workfare," World Bank Research Observer, World Bank Group, World Bank Group, vol. 14(1), pages 31-48, February.
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Citations

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Cited by:
  1. Beatrice Lorge Rogers & Jennifer Coates, 2002. "Food-Based Safety Nets and Related Programs," Working Papers in Food Policy and Nutrition, Friedman School of Nutrition Science and Policy 12, Friedman School of Nutrition Science and Policy.
  2. International Monetary Fund, 2002. "Financial Crises, Poverty, and Income Distribution," IMF Working Papers 02/4, International Monetary Fund.
  3. Honohan, Patrick, 2005. "Banking sector crises and inequality," Policy Research Working Paper Series 3659, The World Bank.
  4. Jha, Raghbendra, 2002. "Reducing Poverty and Inequality in India: Has Liberalization Helped?," Departmental Working Papers, The Australian National University, Arndt-Corden Department of Economics 2002-04, The Australian National University, Arndt-Corden Department of Economics.
  5. Nicola Jones & Hannah Marsden, 2010. "Assessing the Impacts of and Response to the 1997-98 Asian Financial Crisis through a Child Rights Lens," Working papers, UNICEF,Division of Policy and Strategy 1002, UNICEF,Division of Policy and Strategy.
  6. Taschowsky, Peter, 2000. "Soziale Sicherheit und Wachstum," Hannover Economic Papers (HEP), Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät dp-237, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
  7. Marina Halac & Sergio Schmukler, 2003. "Distributional effects of crises : the role of financial transfers," Policy Research Working Paper Series 3173, The World Bank.
  8. Ali Abdel Gadir Ali, . "On the Challenges of Economic Development in Post-Conflict Sudan," API-Working Paper Series 0501, Arab Planning Institute - Kuwait, Information Center.
  9. Ali Abdel Gadir Ali, . "On Financing Post-Conflict Development in Sudan," API-Working Paper Series 0404, Arab Planning Institute - Kuwait, Information Center.
  10. Juan Castro, 2006. "Política fiscal y gasto social en el Perú: Cuánto se ha avanzado y qué más se puede hacer para reducir la vulnerabilidad de los hogares," Working Papers, Departamento de Economía, Universidad del Pacífico 06-05, Departamento de Economía, Universidad del Pacífico, revised Jul 2006.
  11. Pritchett, Lant, 2005. "The political economy of targeted safety nets," Social Protection Discussion Papers 31498, The World Bank.
  12. Philip Arestis & Asena Caner, 2004. "Financial Liberalization and Poverty: Channels of Influence," Economics Working Paper Archive wp_411, Levy Economics Institute.

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