The Human Development Impact of Economic Crises

Economic crises may have macroeconomic causes and effects but they also have a significant impact on human development. This paper sets out an elementary framework for linking the two and reviews the propositions generated by this framework against literature on two recent economic crises: Mexico’s in 1994-5 and Indonesia’s in 1997-8. It finds that these economic crises had a strongly negative effect on household incomes, particularly among urban wage-workers in the nonexported sector. Wages tended to bear the brunt of adjustment with many workers also moving into the informal sector, thereby making themselves more vulnerable to future shocks. Social expenditures fell significantly, particularly on health services. However, while Mexico saw increased mortality rates among the vulnerable, health outcomes in Indonesia were not entirely negative. The picture in terms of education is mixed. Some authors find evidence of a short-term reduction in enrolments in Indonesia and of widening inequality of access to education as a result of the crisis. Others find that enrolments recovered quickly in the aggregate and that substitution effects may have predominated over income effects. Government social expenditures are significantly constrained, even though the services provided are more needed then by the poor than at other times.