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Simulating economy-wide models to capture the transition from financial crisis to social crisis


  • Iwan J. Azis

    () (West Sibley Hall, Cornell University, Ithaca, NY 14850, USA)


The transition from Asian financial crisis into employment and income loss is analyzed in details by using a structural path analysis (SPA) and a price endogenous model of computable general equilibrium (CGE) type. Indonesia is taken as a case study. It is revealed that the damage in the real sector has ripple effects on the services sector, reducing the demand for workers of the professional rural and urban category, the growing middle class of the country. In turn, the overall income of most high urban household declines. The depressed manufacturing and construction sector gravely injures the companies' financial position. For some sectors, the indirect transmission of the effects is not insignificant. The large drop of employment in rural professionals suggests that the rural non-farm activities are likely to receive a recession contagion from the urban-based economy. This also implies that there is no alternative outlet in the rural areas for the urban middle class who lost their jobs. Very likely, some of them will end up working in the informal sector. The CGE simulation also suggests that the real wages have declined, especially in the urban areas. The per-capita consumption of all urban workers drops, the largest decline of which is for the urban medium type. In general, therefore, the relative position of the urban sector deteriorates more than that in the rural area. Hence, the country has to be prepared to face a massive increase in urban poverty, a fertile ground for internal conflicts and social discontent.

Suggested Citation

  • Iwan J. Azis, 2000. "Simulating economy-wide models to capture the transition from financial crisis to social crisis," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 34(2), pages 251-278.
  • Handle: RePEc:spr:anresc:v:34:y:2000:i:2:p:251-278
    Note: Received: January 1999/Accepted: April 1999

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    Cited by:

    1. Arief Anshory Yusuf, 2008. "INDONESIA-E3: An Indonesian Applied General Equilibrium Model for Analyzing the Economy, Equity, and the Environment," Working Papers in Economics and Development Studies (WoPEDS) 200804, Department of Economics, Padjadjaran University, revised Sep 2008.
    2. Arief Anshory Yusuf, 2006. "Constructing Indonesian Social Accounting Matrix for Distributional Analysis in the CGE Modelling Framework," Working Papers in Economics and Development Studies (WoPEDS) 200604, Department of Economics, Padjadjaran University, revised Nov 2006.
    3. Hartono, Djoni & Resosudarmo, Budy P., 2008. "The economy-wide impact of controlling energy consumption in Indonesia: An analysis using a Social Accounting Matrix framework," Energy Policy, Elsevier, vol. 36(4), pages 1404-1419, April.
    4. Arief Anshory Yusuf & Budy P. Resosudarmo, 2007. "On the Distributional Effect of Carbon Tax in Developing Countries: The Case of Indonesia," Working Papers in Economics and Development Studies (WoPEDS) 200705, Department of Economics, Padjadjaran University, revised Aug 2007.
    5. Peter Warr & Arief Anshory Yusuf, 2014. "Fertilizer subsidies and food self-sufficiency in Indonesia," Agricultural Economics, International Association of Agricultural Economists, vol. 45(5), pages 571-588, September.
    6. Wilfredo leiva Maldonado & Octávio Augusto Fontes Tourinho & Marcos Valli, 2004. "Endogenous Foreign Capital Flow in a CGE Model for Brazil: The Role of International Reserves," Discussion Papers 1042, Instituto de Pesquisa Econômica Aplicada - IPEA.
    7. Maldonado, Wilfredo Leiva & Tourinho, Octavio Augusto Fontes & Valli, Marcos, 2007. "Endogenous foreign capital flow in a CGE model for Brazil: The role of the foreign reserves," Journal of Policy Modeling, Elsevier, vol. 29(2), pages 259-276.
    8. Yusuf, Arief Anshory & Resosudarmo, Budy P., 2007. "Searching for Equitable Energy Price Reform for Indonesia," MPRA Paper 1946, University Library of Munich, Germany.
    9. Marcos Esaú Domínguez Viera, 2009. "Aplicación de un modelo de multiplicadores contables y de análisis estructural a políticas sociales seleccionadas en el estado de Nuevo León," Ensayos Revista de Economia, Universidad Autonoma de Nuevo Leon, Facultad de Economia, vol. 0(2), pages 95-137, November.
    10. Dhani Setyawan, 2012. "The Impact of Indirect Taxation on the Plantation Sector in Indonesia," Journal of Social and Development Sciences, AMH International, vol. 3(4), pages 135-141.
    11. Ditya Agung Nurdianto, 2016. "Economic Impacts of a Carbon Tax in an Integrated ASEAN," EEPSEA Special and Technical Paper tp201604t5, Economy and Environment Program for Southeast Asia (EEPSEA), revised Apr 2016.

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