Lessons from past World Bank research on financial crises

Lessons from past World Bank research on financial crises
What lessons can be derived from World Bank research to better understand the current crisis and better inform policy responses? In a new paper reviewing past work, staff of the Bank’s Development Research Group note that the benefits of financial development and globalization have come with continuing fragility in financial sectors. Periodic crises have had real but varied welfare impacts—and not just for poor people. In fact, some of the conditions that foster deep and persistent poverty, such as lack of connectivity to markets, have protected poor people to some degree. Past crises have also had longer-term impacts for some, notably through the nutrition and schooling of children in poor families. The paper highlights the importance of spending composition in designing a fiscal stimulus or adjustment program. Sound information on what is happening on the ground as the crisis unfolds is also crucial. A key lesson from past experience is that short-term responses—macroeconomic stabilization, trade policies, financial sector policies, and social protection—cannot ignore longer-term implications for both economic development and vulnerability to future crises.