Business cycles, economic crises, and the poor: testing for asymmetric effects

Pierre-Richard Agénor

No 2700, Policy Research Working Paper Series from The World Bank

Abstract: The author examines whether output contraction associated with cyclical output fluctuations and economic crises have an asymmetric effect on poverty. He identifies four potential sources of asymmetry: expectations and cofident factors, credit rationing at the firm level (induced by either adeverse selection problems or negative shocks to net worth), borrowing constraints at the household level, and the"labor hoarding"hypothesis. He also identifies some testable implications of these alternative explanations. The author then proposes a vector autoregression technique (involving the detrended components of real output, the unemployment rate, real wages, and the poverty rate) to test whether the initial cyclical position of the economy, and the size of the initial drop in the output gap in a downturn, matter in assessing the extent to which output shocks affect poverty. He applies the technique to Brazil, using annual data for 1981-99. The results indicate that poverty responds asymmetrically to output shocks, showing less sensitivity when the economy is initially in a downturn.

Keywords: Economic Theory&Research; Environmental Economics&Policies; Labor Policies; Health Economics&Finance; Public Health Promotion; Environmental Economics&Policies; Economic Theory&Research; Health Economics&Finance; Achieving Shared Growth; Health Monitoring&Evaluation (search for similar items in EconPapers)
Date: 2001-10-31
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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