Welfare Impact of the Global Economic Crisis of 2008-2009 on Turkish Households: Evidence from a Specialized Monitoring Survey in 7 Provinces

Abstract

This paper looks at how the macro shock from the 2008 financial crisis has translated into income and welfare shocks in the form of reduced earnings and consumption at the household level in Turkey. Using a specialized household level Welfare Monitoring Survey implemented in May-June 2009 in 7 provinces of Turkey, the paper estimates the impact of the macro-shock on food, education and health related expenditures. The paper first establishes a link between the macro level shock in the financial sector in the province and the changes in earnings at the household level and then using an instrumental variables strategy, establishes the link between the earnings shock and changes in consumption. The main findings in the paper are that the informally employed workers, and those with lower levels of education (lower than university level) were more likely to be hurt by the Crisis in the provinces where the survey was collected. Food expenditures acted as the main adjustment mechanism in the face of the income shock, while education and health expenditures remained relatively stable. The probability of reducing food consumption (and the amount of food provided to children) was highest among the poor that initially had low levels of household assets.

Keywords: Global Financial crisis, Income Shock, Coping Strategies, Turkey

JEL Classification: D10, D12, D31, I30