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

Cruces, Guillermo and Gluzmann, Pablo and Lopez-Calva, Luis Felipe (2010): Permanent Effects of Economic Crises on Household Welfare: Evidence and Projections from Argentina’s Downturns. Published in: ANALES | ASOCIACION ARGENTINA DE ECONOMIA POLITICA , Vol. Noviem, (November 2010): pp. 1-23.

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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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