How This Study Fits into the Literature on Economic Shocks

and the government’s new compensatory measures. It concludes with thoughts on the main findings, especially in terms of how they could help policy makers design mitigation measures.

How This Study Fits into the Literature on Economic Shocks

Given the most recent growth prospects, the World Bank estimates that the COVID-19 pandemic will increase the number of poor people around the world, and that lower labor incomes and higher unemployment are putting welfare at risk for many. In developing countries, phone surveys conducted by the World Bank show that income losses in International Development Association (IDA) countries are more prevalent than in non-IDA countries, but households in IDA countries are less likely to suffer job stoppages during COVID-19 than those in non-IDA countries (Yoshida, Narayan, and Wu 2020).

Within countries, there is empirical evidence that workers are more likely to stop working in services and industry sectors than in agriculture (Khamis et al. 2021). Incomes for self-employed workers in the services and high-intensity contact sectors that are difficult to do from home are being the hardest hit. This is consistent with findings from skills surveys from 53 countries, which reveal that workers in hotels and restaurants, construction, agriculture, and commerce are less likely to be able to work from home (Hatayama, Viollaz, and Winkler 2020). Phone surveys in developing countries also show that women and lower-educated workers are more likely to lose their jobs, especially in industry and service sectors (Sanchez-Paramo and Narayan 2020). Similar findings have been echoed in the United States, United Kingdom, and Germany (AdamsPrassl et al. 2020).

In many places, prices have risen during the pandemic. According to Food and Agriculture Organization data, food prices in the Islamic Republic of Iran—as well as in the Arab Republic of Egypt, Kuwait, Lebanon, Morocco, Qatar, Saudi Arabia, the Syrian Arab Republic, Tunisia, and the Republic of Yemen—have risen by more than 20 percent since February 2020. There is a considerable literature assessing the impact of price changes, particularly food and agricultural prices, on poverty. Ivanic, Martin, and Zaman (2012) estimate the first-order impacts of the 2006–08 food price crisis for a large number of developing countries and find an overall poverty increase of 1.1 and 0.7 percentage points in low- and middle-income countries, respectively. Similarly, de Hoyos and Medvedev (2011) find that rising food prices can increase poverty by 1.7 percentage points at the global level, even

after accounting for the rise in incomes of agricultural producers, and by 0.6 points when incorporating potential higher wages in the biofuels industry. Various country-level studies also attest to the severe impact of large food price increases on households (for example, de Janvry and Sadoulet 2010; Fujii 2013; Rodriguez-Takeuchi and Imai 2013; Vu and Glewwe 2011).

This chapter is also related to a few studies that focus on the heterogeneous impact of depreciation-driven inflation on households’ living standards. For Egypt, Kraay (2007) and Alazzawi and Hlasny (2019) estimate the impact of two currency depreciation episodes on household welfare. They start by estimating the pass-through of the depreciation to consumer inflation and then focus on the welfare impacts via household consumption. Kraay (2007) finds that the average welfare loss is 7.4 percent of initial household expenditures, and that most of that loss is accounted for by the direct effect, that is, before households make substitutions to their consumption patterns. A similar direction, but stronger impacts, are found by Alazzawi and Hlasny (2019) for the most recent depreciation of 2016.

For Mexico, a study by Cravino and Levchenko (2017), which focuses on the country’s 1994 hyperinflation episode, highlights how inflation is felt differently across the income distribution, depending on two aspects of households’ consumption patterns. First, poorer households spend more on tradable goods, making them more exposed to price fluctuations associated with a devaluation. Households in the lower deciles of the distribution consequently experience increases in their cost of living that are 1.25 times the rise experienced by those in the higher deciles. Second, within products, low-income households spend more on lower quality (and thus lower priced) items, which the authors also find rose disproportionally in Mexico compared with high-quality varieties.

As for economic shocks, the literature distinguishes between the immediate and the later impacts. In the medium and long run, households might be able to adjust by purchasing cheaper goods, and by switching agricultural household production to crops with higher returns, and further derive higher labor incomes if wages in certain production sectors rise. Ivanic and Martin (2014) compare the short- and long-run impacts of food price increases in a sample of developing countries. They find that while the estimated long-run impacts are in fact smaller, there are still some groups of households (low-educated, female-headed, and urban ones) for whom poverty increases even after accounting for second-order effects. It is not surprising that the urban poor are more vulnerable to price surges and less likely to benefit from increases in agricultural household production, as they tend to do little of this activity. But even most rural households, especially the poorest, are