Environmental Engineering Reference
In-Depth Information
1.4.
E
CONOMIC
R
ESILIENCE
The economic resilience refers to the policy- induced ability of an
economy to recover from or adjust to the negative impacts of adverse
exogenous shocks and to benefit from positive shocks [26, 27,28]. The term is
used in two senses , respectively relating to the ability to: (a) recover quickly
from a shock; and (b) withstand the effect of a shock.
These four scenarios are depicted in figure 1, where the axes measure
inherent economic vulnerability and nurtured resilience, respectively.
Figure 1. The Four Scenarios.
This is associated with the flexibility of an economy, enabling it to bounce
back after being adversely affected by a shock. This ability will be severely
limited if, for example, there is a chronic tendency for large fiscal deficits. On
the other hand, this ability will be enhanced when the economy possesses
discretionary policy tools which it can utilize to counteract the effects of
negative shocks, such as a strong fiscal position, which would entail that
policymakers can utilize discretionary expenditure or tax cuts to contrast the
effects of negative shocks.
This relates to the ability to absorb shocks, so that the end effect of a
shock is neutered or rendered negligible. This type of resilience occurs when
the economy has in place mechanisms to reduce the effects of shocks, which
