IMPACT OF FINANCIAL CRISES ON POVERTY IN THE DEVELOPING WORLD : AN EMPIRICAL ANALYSIS

In this paper, we adopt a cross-country perspective to analyze the short term effects of currency, banking and debt crises on poverty. We employ multivariate fixed effects panel data analysis in order to examine whether and to what extent different types of financial crises impact the poverty headcount ratio and the poverty gap (as measured by the World Bank). Our findings suggest that out of the three categories of financial crises we identify, it is currency crises that most significantly exacerbate both the incidence and depth of poverty in the short run. We find evidence that banking crises are associated with an increase in the depth of poverty but not the incidence (however this effect tends to be short-lived), while, our analysis shows no direct effect of sovereign debt crises on short term poverty. 1 I would like to thank my advisors (Prof. Tomasz Mickiewicz and Dr. Christopher Gerry) for their comments on the first draft. I would also like to thank the participants of the EBRD Office of the Chief Economist Seminar for their comments on the empirical part of the paper, Prof. Branko Milanovic for his comments during the Poverty and Inequality seminar held at UCL in September 2009, the participants of the World Bank’s ECA Chief Economist seminar series held in Washington in November 2009, as well as Jeromin Zettlemeyer, Peter Sanfey, Julia Korosteleva, Jasmina Hadzic, Jayendu De as well as three

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