On the Definition and Estimation of Economic Resilience using Counterfactuals

A household is economically resilient if it manages a shock with minimal reduction in current and future well-being. This paper develops the first measure of resilience consistent with this simple, but compelling definition. Using simulated data, we implement the measure and show it can be used to judge the efficacy of resilience-promoting interventions. Simulated data allows us to explore the measure under a variety of scenarios, interventions and data generation processes. We also show how the measure performs in the with and without poverty traps and show that when data are limited, income is a more reliable measure of economic well-being for measuring resilience than is consumption. We also implement the measure using real data from a recent RCT on an intervention intended to promote resilience and show that the financial returns to promoting resilience are high and can save public resources compared to a reactive social protection policy.