Transcript Financial Crises, Poverty, and Income Distribution

Macroeconomic Crises and
Household Welfare
Gabriela Inchauste
I. The Mexican Experience…
• 1994-95 Financial crisis: Real GDP fell 6%, inflation
52%, depreciation 47%, unemployment doubled.
Data: successive rounds of national household surveys.
Methodology:
• Logit model for pre- and post crisis years:
– Assess the determinants of the probability of being poor.
• Logit model for the pooled data:
– Test the stability of regression coefficients using a dummy
variable for the post-crisis period;
– Identify the characteristics of winners and losers.
Mexico: the findings…
• Poverty incidence increased, reversing earlier gains.
• Poverty gap increased in 94-96, but not enough to
reverse earlier gains.
Table 1 - Poverty incidence and poverty gap 1/
(in percent, unless otherwise speficied)
Poverty head count
1992
1994
1996
Extreme poverty
12.7
10.6
16.9
Change
1994-96
60%
1992
30.3
Poverty gap
1994
1996
25.8
Source: IMF staff estimates based on 1992, 1994 and 1996 ENIGH.
1/ Poverty is measured as consumption relative to a basic basket as defined by INEGI in 1992.
28.8
Change
1994-96
12%
Mexico: the findings (cont.)…
• The risk of poverty increased disproportionately for:
– Residents in urban areas; Yucatan peninsula;
– Households headed by very young or very old persons;
– Poverty risks in rural areas decreased, but the relative risk of
being poor remained more than twice as high as that of urban
households.
Figure 1. Mexico: Distribution of
Equivalent Expenditure
.1
1996
1994
Fraction
.075
.05
.025
10
100
500
expeq
2000
10000
30000
Mexico: the findings (cont.)…
• Inequality declined in the aftermath of the
crisis:
– Gini coefficients and other inequality measures were
significantly lower in 1996 than in 1994 and in 1992.
– Average wages for the richest decile fell by more than
the average drop in wages.
• The targeting of public transfers did not improve
substantially after the crisis, nor did transfers
prevent many people from becoming poor.
II. Argentina
• 2001-02 Financial crisis: Real GDP fell over 10%, depreciation
400%, banking system paralyzed; debt default.
• Goals of the paper
– (1) Identify the characteristics that contributed the most to
household and individual vulnerability, measured as
changes in income and its dispersion.
– (2) Identify individuals most likely to be unemployed or
become unemployed?
• Data:
– Permanent Household Survey, collected in May and
October 1999-2002 in 28 urban centers.
– Rolling panel allows to control for individual, region and
time effects.
Social Indicators: May 1999-May 2002
Argentina: Social Indicators
60
22
55
20
50
45
18
40
16
35
30
14
25
20
12
1999
Poverty GBA
2000
2001
Gini Coefficient
Source: INDEC and authors' calculations
2002
Unemployment
Unemployment
Poverty and Inequality
• Poverty in Gran
Buenos Aires rose
from 27.1 to 49.7
percent
• Inequality rose from
49.3 to 56.6
• Unemployment rose
from 14.5 to 21.5
percent
Who bore the burden of adjustment?
Argentina: the findings…
• Both poverty and income inequality increased over the 19992002 period, and particularly after October 2001.
• Individuals in the poorest decile of the income distribution
experienced the largest declines in income.
• Characteristics that contributed to household vulnerability:
– Lower education of the head
– Private sector employment of the head, particularly
construction sector
– Larger households, those with more children, and higher
proportion of occupied members.
Argentina: the findings
• Both the incidence of unemployment and
unemployment rates rose during the crisis.
• Unemployment rates were higher for young
individuals, women, and those with low levels of
education.
• Males, those employed in the private sector
(particularly in construction), and with low levels
of experience and education were more likely to
loose their jobs.
• Households are unable to perfectly smooth shocks,
especially the poorest.
III. Conclusions
• Sound macroeconomic policies.
• Understand vulnerabilities
– Improve existing household data
• Improve existing social protection system
– Develop targeting mechanisms (geographical?)
– Design of the safety net should incorporate poverty risk
of different population groups
• Greater labor market flexibility and easier access
to jobs can aid in reducing vulnerability.