The authors acknowledge the comments received from participants and commentators at the Eighth PEP General Meeting, Dakar (Senegal) and the Fourth Regional Meeting on General Equilibrium Modeling, Guayaquil (Ecuador). All remaining errors are ours.
Lessons from the 2008 Financial Crisis: Policy Responses to External Shocks in Uruguay
Article first published online: 19 AUG 2013
© 2013 Institute of Developing Economies
The Developing Economies
Volume 51, Issue 3, pages 233–259, September 2013
How to Cite
Estrades, C. and Llambí, C. (2013), Lessons from the 2008 Financial Crisis: Policy Responses to External Shocks in Uruguay. The Developing Economies, 51: 233–259. doi: 10.1111/deve.12017
- Issue published online: 19 AUG 2013
- Article first published online: 19 AUG 2013
- Manuscript Accepted: MAY 2013
- Manuscript Received: AUG 2012
- Financial crisis;
- Trade shock;
- Policy response;
The 2008 global economic crisis affected the Uruguayan economy through two main channels: collapse in global trade and drop in capital flows. In response to the crisis, the Uruguayan 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.