Lessons from the 2008 Financial Crisis: Policy Responses to External Shocks inUruguay
In: The developing economies: the journal of the Institute of Developing Economies, Tokyo, Japan, Band 51, Heft 3, S. 233-259
ISSN: 1746-1049
The 2008 global economic crisis affected theUruguayan economy through two main channels: collapse in global trade and drop in capital flows. In response to the crisis, theUruguayan government increased public consumption and investment and expanded social benefits to unemployed workers. We apply a computable general equilibrium model linked to microsimulations to analyze the distributional impacts of these policies and assess their effectiveness. We find that an increase in public investment was the only policy effective in mitigating the negative impact of the crisis on extreme poverty. The other policies reinforced the negative impact of the crisis on the poor. All three policies are costly and have an important impact on macroeconomic variables and the structure of production and export, while they have only slight or negative results on poverty and household income. More focalized policies, such as direct cash transfers, might have better results in terms of cost‐benefit.