Study: Poor Need Better Protection During Economic Crises

January 10, 2012

  • The 2008-2009 financial crisis pushed more than 200 million people into poverty, economists estimate.
  • New World Bank book proposes a model for estimating how economic shocks affect people at individual, household level.
  • More detailed data can trigger better protections for the poor.

WASHINGTON, January 10, 2012 – During economic recessions, policymakers and economists tend to focus on how the crisis affects growth, employment, overall household incomes and tax revenues. The local, individual story is often missed in such big-picture analysis.

The lack of “micro” data is especially acute in developing countries where household surveys are often sporadic and out of date. That makes it difficult for governments to retool existing poverty programs, much less predict who is likely to be pushed into poverty during an economic shock.

A new book published by the World Bank outlines a comprehensive approach for estimating data at the individual and household level to help policymakers target their responses in a more timely and effective manner. It also offers suggestions for how they can better plan for future crises.

The book, Knowing, When You Do Not Know, came in response to demands from World Bank staff who worked in countries and national governments following the 2008 – 2009 global financial crisis. Many of them felt that existing analysis lacked critical information on employment, poverty, and social impacts needed to design responses to the crisis.

" It allows users...to identify affected groups and individuals and to evaluate the effectiveness of existing poverty and safety-net programs. "

The model outlined in the new book focuses on predicting impacts on individuals and household, as well as on identifying who was most likely to be affected by the economic recession -- and in what way.

It was conceptualized, refined and tested in Bangladesh, Mexico, Mongolia, the Philippines and Poland over the last couple of years. The results were then fed into country policy dialogues and Bank lending operations to promote systems that better protect the poor going forward.

“Although this is not the first time that microsimulation techniques are used by World Bank staff to predict the impact of macroeconomic shocks, the proposed model produces a more complete set of predictions,” said Carolina Sanchez-Paramo, a lead economist and co-editor of Knowing, When You Do Not Know.

It allows users to identify affected groups and individuals and to evaluate the effectiveness of existing poverty and safety-net programs.”