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Permanent Effects of Economic Crises on Household Welfare: Evidence and Projections from Argentina’s Downturns

  • Cruces, Guillermo
  • Gluzmann, Pablo
  • Lopez-Calva, Luis Felipe

The quantification of the impact of crises on household welfare and socioeconomic outcomes is a fundamental input for the design of ex ante safety nets and ex post alleviation programs. Economic downturns have direct effects through employment and household income, but whether these and other impacts are permanent rather than transitory is harder to establish. This study of Argentina estimates the relationship between GDP growth and severe crises on poverty, youth unemployment, and a series of human capital related outcomes, such as infant and maternal health, and school enrollment and progression. The identification strategy relies on provincial variation in GDP, and on a difference in differences estimation from the severe 1999-2002 crisis. The objective is twofold. On the one hand, the study documents the effects of past episodes. On the other hand, it extrapolates past results to provide bounds for the impact of the 2007-2009 financial crisis in Argentina. Besides the expected and well-documented relationship between crises and poverty levels, the main finding of this study is a strong effect on infant mortality and low weight at birth. Moreover, there is an asymmetry in these effects: the negative impact of downturns is greater than the positive evolution during recoveries. The results for education variables are more ambiguous, and even counter-cyclical in some cases. The document discusses the implications of these estimates for the current episode. Overall, these results provide evidence of permanent effects of economic crises through lower levels of human capital, worsening health outcomes and increased mortality.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 42949.

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Date of creation: Nov 2010
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Handle: RePEc:pra:mprapa:42949
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  1. Guillermo Cruces & Leonardo Gasparini, 2008. "A Distribution in Motion: The Case of Argentina," CEDLAS, Working Papers 0078, CEDLAS, Universidad Nacional de La Plata.
  2. Sarah Baird & Jed Friedman & Norbert Schady, 2009. "Aggregate Income Shocks and Infant Mortality in the Developing World," Working Papers 2010-07, The George Washington University, Institute for International Economic Policy.
  3. Friedman, Jed & Schady, Norbert, 2009. "How many more infants are likely to die in Africa as a result of the global financial crisis ?," Policy Research Working Paper Series 5023, The World Bank.
  4. Ferreira, Francisco H. G. & Schady, Norbert, 2008. "Aggregate economic shocks, child schooling and child health," Policy Research Working Paper Series 4701, The World Bank.
  5. Peter R. Fallon & Robert E. B. Lucas, 2000. "The Impact of Financial Crises on Labor Markets, Household Incomes and Poverty: A Review of Evidence," Boston University - Institute for Economic Development 103, Boston University, Institute for Economic Development.
  6. Schady, Norbert, 2006. "Early childhood development in Latin America and the Caribbean," Policy Research Working Paper Series 3869, The World Bank.
  7. Florencia López Bóo, 2012. "In School or at Work? Evidence from a Crisis," Oxford Development Studies, Taylor & Francis Journals, vol. 40(3), pages 381-404, September.
  8. Marina Halac & Sergio L. Schmukler, 2004. "Distributional Effects of Crises: The Financial Channel," ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION, ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION.
  9. Bhalotra, Sonia, 2010. "Fatal fluctuations? Cyclicality in infant mortality in India," Journal of Development Economics, Elsevier, vol. 93(1), pages 7-19, September.
  10. Schady, Norbert & Smitz, Marc-Francois, 2010. "Aggregate economic shocks and infant mortality: New evidence for middle-income countries," Economics Letters, Elsevier, vol. 108(2), pages 145-148, August.
  11. Christina Paxson & Norbert Schady, 2005. "Child Health and Economic Crisis in Peru," World Bank Economic Review, World Bank Group, vol. 19(2), pages 203-223.
  12. Norbert R. Schady, 2004. "Do Macroeconomic Crises Always Slow Human Capital Accumulation?," World Bank Economic Review, World Bank Group, vol. 18(2), pages 131-154.
  13. Guillermo Cruces & Quentin Wodon, 2003. "Argentinas Crises and the Poor, 1995-2002," STICERD - Distributional Analysis Research Programme Papers 71, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  14. Florencia López Bóo, 2008. "How Do Crises Affect Schooling Decisions?: Evidence from Changing Labor Market Opportunities and a Policy Experiment," IDB Publications (Working Papers) 6754, Inter-American Development Bank.
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