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A doubling of poverty, even if only for a year or two, has an impact on infant and child mortality, on schooling rates, and other welfare variables that have long-run consequences. I once calculated that the elasticity of mortality rates with respect to real rice prices (in Sri Lanka and Bangladesh) is about 0.1; that is, if rice prices rise by 10 percent, the mortality rate rises by 1 percent. It’s not hard to understand why: poor people die more frequently when their already diminished nutrient intake gets cut back. They "exit" the population, and thus do not show up in the calculated per capita income a decade later.
My own take on the likely long-run impact is somewhat akin to Vijaya Ramachandran’s comment on the setback to the global cause of accountability and good governance. Except that I think the bigger problem may be on the reputation of market-based solutions. The crisis is likely to cause a serious erosion in the confidence of policymakers in developing countries to prefer market-based approaches to development instead of state-managed approaches.
The "market" now has a bad name, as it did after the Great Depression. Last time this happened, poor countries opted for state planning and an over-reliance on poorly designed and implemented regulations which resulted in several decades of poor economic management and low per capita income growth.
CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.