Direct and Indirect Effects of Lockdown Policies on Poverty and Inequality in Latin America

51 Pages Posted: 23 Apr 2021

See all articles by Andrés Álvarez

Andrés Álvarez

Universidad de los Andes - Department of Economics

Oscar Becerra

Universidad de los Andes, Colombia

Catalina Bernal

Universidad de los Andes, Colombia

Julio César Daly

Universidad de los Andes, Colombia - Department of Economics

Juliana Quigua

Universidad de los Andes, Colombia

Yyannu Cruz-Aguayo

Inter-American Development Bank

Date Written: April 13, 2021

Abstract

We estimate the possible effects on poverty and income distribution of the crisis unleashed by Covid-19 on a group of Latin America and Caribbean countries, representing 80% of the total population in the region: Argentina, Brasil, Chile, Colombia, Ecuador, Honduras, Mexico, Paraguay, Peru, and Uruguay. We use household survey data from pre-crisis national household surveys and, based on prospective scenarios of vulnerability to the shock, we compute the impact that income losses may have on a country's poverty levels and inequality. Our vulnerability scenarios are based on the national policies used to prevent the rapid expansion of the Coronavirus. Additionally, for a sub-sample of 6 countries (Brazil, Chile, Colombia, Ecuador, Mexico and Peru) we use Input-Output linkages to estimate direct and indirect shocks to consider how the differences of the productive structures, economic linkages, and labor market characteristics of each country could result in different effects on poverty and inequality. We find a significant increase on poverty headcount ranging from 25% to 33% percent in our different estimations. The results show heterogeneity on the exposure to the shocks. Two main factors explain differences across countries: their level of specialization in activities labeled as essential (e.g., agriculture, public sector, food retail) and their level of employment protection and stability (i.e., type of contract and employment in larger firms). We find a higher vulnerability to the propagation of the shocks in countries with a bigger agricultural sector, and less vulnerability in countries with bigger firms, and lower informality.

Keywords: Covid-19, poverty, inequality, Latin America, lockdown policies, simulations

JEL Classification: N36, I38, I14, D57

Suggested Citation

Alvarez, Andres and Becerra, Oscar and Bernal, Catalina and César Daly, Julio and Quigua, Juliana and Cruz Aguayo, Yyannu, Direct and Indirect Effects of Lockdown Policies on Poverty and Inequality in Latin America (April 13, 2021). Documento CEDE No. 21, Available at SSRN: https://ssrn.com/abstract=3832196 or http://dx.doi.org/10.2139/ssrn.3832196

Andres Alvarez (Contact Author)

Universidad de los Andes - Department of Economics ( email )

Calle 19A No. 1-37 Este
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HOME PAGE: http://economia.uniandes.edu.co/alvarez

Oscar Becerra

Universidad de los Andes, Colombia ( email )

Carrera Primera # 18A-12
Bogota, DC D.C. 110311
Colombia

Catalina Bernal

Universidad de los Andes, Colombia

Carrera Primera # 18A-12
Bogota, DC D.C. 110311
Colombia

Julio César Daly

Universidad de los Andes, Colombia - Department of Economics ( email )

Carrera 1a No. 18A-10
Santafe de Bogota, AA4976
Colombia

Juliana Quigua

Universidad de los Andes, Colombia

Carrera Primera # 18A-12
Bogota, DC D.C. 110311
Colombia

Yyannu Cruz Aguayo

Inter-American Development Bank ( email )

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