EFFECTS OF THE ECONOMIC CRISIS ON THE MICROECONOMIC

Effects of the economic crisis on the microeconomic

Abstract

The living publications on international economic crises have tended to aim on macroeconomic facets, such as flaws in macroeconomic fundamentals and self-fulfilling expectations. Latest work has sought to load up in the gap in the microeconomic impact of economic crises. This paper utilizes a longitudinal household survey dataset for Bulgaria to analyze dissimilarities in consumption expenditure from the year 1995 to 1997, throughout which time the finances skilled a financial crisis. Its prime finding is that the urgent situation had differential impacts on distinct assemblies in society, and these assemblies are represented in terms of both their asset and output dimensions as well as by their socioeconomic and demographic dimensions.

Table of contents

INTRODUCTION4

PROBLEM STATEMENT5

BRIEF OF THE PROJECT5

LITERATURE REVIEW7

HYPOTHESIS12

DISCUSSION OF HYPOTHESIS12

METHODOLOGY13

ANALYSIS OF THE RESULT13

REFERENCES15

APPENDICES16

Introduction

While the macroeconomic aspects surrounding financial crises have been well explored, both theoretically and empirically, the micro economic impact of such crises has only recently received greater attention. One key feature of these micro-level studies is the emphasis on the differential impact that financial crises impose on the consumption, expenditure and labor supply decisions of various groups in society. For example, McKenzie (2003) examines the impact of the 1995 peso crisis on households in Mexico, and finds that, while the effects of the crisis were widespread, these differed across households, leading to varying adjustment mechanisms implemented to adapt to the aggregate shock. (Ganev 2007)

Similarly, Frankenberg, Smith & Thomas (2003) consider the effects of the Asian financial crisis on the well-being of Indonesian households; they likewise find tremendous diversity in the effects of the shock. Some households (notably, net food producers) experienced a welfare improvement due to the shock, while for many others the crisis was more devastating. Alem & Townsend (2003), using household/ small business data from Thailand, study the pre- and post -crisis consumption and investment responses to idiosyncratic risk. (Frankenberg 2006)

Their results support the idea that regional, occupational, and wealth differences matter in determinant the net impact of the crisis. Finally, it is notable that not all investigations inevitably imply differential influences due to crises. McKenzie (2004) looks at the 2002 Argentinean financial crisis using panel urban household data, testing for changes in labor-related variables such as nominal wages, workforce participation, and hours worked. In contrast to the above findings, the large aggregate fall in real wages in Argentina was evenly spread over all sectors of the economy, such that the distribution of nominal incomes remained largely constant. (Chang 2008)

Problem statement

Governments round the world are endeavoring to comprise the current economic urgent situation whereas numerous worry the poorest is not yet over.

Brief of the project

In consumption expenditure and income changes between the years 2009 and 2010, the differentiating in these changes by various demographic and socioeconomic characteristics, as well as by household production, assets and wealth variables. Given that countries experienced a systemic crisis at the end of 2009, the economic environment provides an ideal natural experiment by which we exploit ...