Social Impacts of the Asian Crisis

This paper documents the social impacts of the financial crisis in Asia. We provide a general overview of the causes and the evolution of the crisis and highlight the differences as well as the similarities among the affected Asian countries. In particular, the impacts of the crisis on unemployment, real wage, poverty, and income inequality are analyzed using a cross-country data set, which consists of all the countries that have received financial assistance from the IMF over the period from 1973 to 1994. The stylized pattern of employment growth in previous IMF program countries indicates that employment growth is more sluggish in the recovery process compared with other macroeconomic variables. Hence, unemployment rates can remain high for a long period even after the crisis ends in the Asian countries. We also find that the crisis aggravates poverty for marginal groups of the population over a significant period, even though it does not bear a long-term effect on overall income distribution. Policy implications of our findings in building social safety nets in Asia are also discussed.