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Protecting the poor from macroeconomic shocks

Author

Listed:
  • 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.

Suggested Citation

  • Ferreira, Francisco & Prennushi, Giovanna & Ravallion, Martin, 1999. "Protecting the poor from macroeconomic shocks," Policy Research Working Paper Series 2160, The World Bank.
  • Handle: RePEc:wbk:wbrwps:2160
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Ali Abdel Gadir Ali, "undated". "On the Challenges of Economic Development in Post-Conflict Sudan," API-Working Paper Series 0501, Arab Planning Institute - Kuwait, Information Center.
    2. Taschowsky, Peter, 2000. "Soziale Sicherheit und Wachstum," Hannover Economic Papers (HEP) dp-237, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    3. Jha,R., 2000. "Reducing Poverty and Inequality in India: Has Liberalization Helped?," Research Paper 204, World Institute for Development Economics Research.
    4. Pritchett, Lant, 2005. "The political economy of targeted safety nets," Social Protection and Labor Policy and Technical Notes 31498, The World Bank.
    5. Marina Halac & Sergio Schmukler, 2003. "Distributional effects of crises : the role of financial transfers," Policy Research Working Paper Series 3173, The World Bank.
    6. Philip Arestis & Asena Caner, 2004. "Financial Liberalization and Poverty: Channels of Influence," Economics Working Paper Archive wp_411, Levy Economics Institute.
    7. Ali Abdel Gadir Ali, "undated". "On Financing Post-Conflict Development in Sudan," API-Working Paper Series 0404, Arab Planning Institute - Kuwait, Information Center.
    8. 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 1002, UNICEF,Division of Policy and Strategy.
    9. Honohan, Patrick, 2005. "Banking sector crises and inequality," Policy Research Working Paper Series 3659, The World Bank.
    10. International Monetary Fund, 2002. "Financial Crises, Poverty, and Income Distribution," IMF Working Papers 02/4, International Monetary Fund.
    11. Beatrice Lorge Rogers & Jennifer Coates, 2002. "Food-Based Safety Nets and Related Programs," Working Papers in Food Policy and Nutrition 12, Friedman School of Nutrition Science and Policy.
    12. Henri-François HENNER, 2002. "Compétitivité, réformes budgétaires et réduction de la pauvreté au Bénin. Croissance et pauvreté," Working Papers 200208, CERDI.
    13. Juan F. 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 06-05, Centro de Investigación, Universidad del Pacífico.

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