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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
  • James Levinsohn

Abstract

Analyzing the distributional impacts of economic crises is an ever more pressing need. If policymakers are to intervene to help those most adversely affected, they need to identify those who have been hurt most and estimate the magnitude of the harm they have suffered. They must also respond in a timely manner. This article develops a simple methodology for measuring these effects and applies it to analyze the impact of the Indonesian economic crisis on household welfare. Using only pre-crisis household information, it estimates the compensating variation for Indonesian households following the 1997 Asian currency crisis and then explores the results with flexible nonparametric methods. It finds that virtually every household was severely affected, although the urban poor 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 or not households are permitted to substitute toward relatively cheaper goods. The geographic location of the household matters even within urban or rural areas and household income categories. Households with young children may have suffered disproportionately large adverse effects. Copyright 2002, Oxford University Press.

Suggested Citation

  • Jed Friedman & James Levinsohn, 2002. "The Distributional Impacts of Indonesia's Financial Crisis on Household Welfare: A "Rapid Response" Methodology," World Bank Economic Review, World Bank Group, vol. 16(3), pages 397-423, December.
  • Handle: RePEc:oup:wbecrv:v:16:y:2002:i:3:p:397-423
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    References listed on IDEAS

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    1. Deaton, Angus, 1990. "Price elasticities from survey data : Extensions and Indonesian results," Journal of Econometrics, Elsevier, vol. 44(3), pages 281-309, June.
    2. 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.
    3. Case, Anne C, 1991. "Spatial Patterns in Household Demand," Econometrica, Econometric Society, vol. 59(4), pages 953-965, July.
    4. James A. Levinsohn & Steven T. Berry & Jed Friedman, 2003. "Impacts of the Indonesian Economic Crisis.Price Changes and the Poor," NBER Chapters, in: Managing Currency Crises in Emerging Markets, pages 393-428, National Bureau of Economic Research, Inc.
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    8. 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.
    9. Ravallion, Martin & Bidani, Benu, 1994. "How Robust Is a Poverty Profile?," World Bank Economic Review, World Bank Group, vol. 8(1), pages 75-102, January.
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