The livelihoods of most people, especially the poor, are dependent on their involvement in markets as private agents or as employees, and indirectly, on the wider economy for the supply and demand of goods and services. Economic actors and institutions, from farmers and retailers, to regulatory bodies and central banks, play key roles in resilience against economic shocks.
Economic systems may experience shocks and stressors:
- Financial crisis from price fluctuations or market disruptions, for example from new regulations or sanctions
- Events outside of the financial system - such as conflict and climate-related disaster - can cause a range of shocks challenging market functions and the loss of economic resources
- Economic stressors ranging from widespread poverty, the threat of conflict, to reliance on natural resources and foreign aid, undermine the resilience of the economies and can also increase the exposure to certain shocks
Economic resilience refers to the ability of people to mitigate, adapt to and recover from shocks that affect their livelihoods, and transformative capacities that ensure financial inclusion, access to credit and insurance that allow households to diversify their income strategies.
Interventions that increase access to financial tools like insurance, credit, and digital payment systems help strengthen resilience for poor individuals.
Livelihood diversification can improve resilience if efforts to increase income streams and assets diversify potential risks.
Access to functioning, resilient markets strengthens household resilience by increasing asset accumulation and livelihood diversification.