Simulating the Impact of the 2009 Financial Crisis on Welfare in Latvia

22 Pages Posted: 20 Apr 2016

See all articles by Mohamed Ihsan Ajwad

Mohamed Ihsan Ajwad

World Bank - Human Development

Francisco Haimovich

Universidad Nacional de La Plata - Centro de Estudios Distributivos, Laborales y Sociales (CEDLAS)

Mehtabul Azam

Oklahoma State University - Stillwater; IZA Institute of Labor Economics

Date Written: January 1, 2012

Abstract

This note details simulations of the distributional impacts of the 2009 financial crisis on households in Latvia. It uses household survey data collected prior to the crisis and simulates the impact of the growth slowdown. The simulations show that Latvia experienced a sharp rise in poverty, widening of the poverty gap, and a rise in income inequality due to the economic contraction in 2009. The 18 percent contraction in gross domestic product (affecting mainly trade hotels and restaurants, construction, and manufacturing) likely led the poverty head count to increase from 14.4 percent in 2008 to 20.2 percent in 2009. The poverty gap, which measures the national poverty deficit, was simulated to increase from 5.9 percent in 2008 to 8.3 percent in 2009. The analysis finds that the results are robust to most assumptions except post-layoff incomes, which substantially mitigated household welfare. The authors also simulate the impact of Latvia's Emergency Social Safety Net components and find that the Safety Net likely mitigated crisis impacts for many beneficiaries. The simulations measure only direct short-run impacts; hence, they do not take into account general equilibrium effects. Post-crisis income data from a different data source suggest that poverty rates increased by 8.0 percentage points between 2008 and 2009. As a result, the authors suggest that their ex-ante simulation performs reasonably well and is a useful tool to identify vulnerable groups during the early stages of a crisis.

Keywords: Achieving Shared Growth, Labor Markets, Regional Economic Development, Labor Policies, Rural Poverty Reduction

Suggested Citation

Ajwad, Mohamed Ihsan and Haimovich, Francisco and Azam, Mehtabul, Simulating the Impact of the 2009 Financial Crisis on Welfare in Latvia (January 1, 2012). World Bank Policy Research Working Paper No. 5960. Available at SSRN: https://ssrn.com/abstract=1996990

Mohamed Ihsan Ajwad (Contact Author)

World Bank - Human Development ( email )

1818 H Street, N.W.
Washington, DC 20433
United States
202-473-7861 (Phone)

Francisco Haimovich

Universidad Nacional de La Plata - Centro de Estudios Distributivos, Laborales y Sociales (CEDLAS) ( email )

Calle 6 e/47 y 48
La Plata, Provincia de Buenos Aires 1900
Argentina

Mehtabul Azam

Oklahoma State University - Stillwater ( email )

Stillwater, OK 74078-0555
United States

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

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