VILEN V. KHACHATRYAN HARUTYUN T. TERZYAN ANNA R.

MAKARYAN

POST-CRISIS DEVELOPMENTS IN ARMENIA

Yerevan, Armenia Gitutyun Publishing House National Academy of Sciences of the Republic of Armenia 2013 1

UDC 338.124.4

Approved for publishing by the decree of the Scientific Council of M. Kotanyan Institute of Economics of the National Academy of Sciences of the Republic of Armenia

Khachatryan V.V. et al. Post-Crisis Developments in Armenia / Khachatryan, V.V.; Terzyan, H.T.; Makaryan, A.R., Yerevan, Armenia: Gitutyun Publishing House of the NAS of the RA, 2013, 106 p.

Acknowledgments
This research has been implemented in the scope of CRRCArmenia Research Fellowship Program, financed by the Carnegie Corporation of New York. The authors are grateful to Dr. Aleksandr Grigoryan and Dr. Tatul Manaseryan for reviewing the text; Ms. Armine Hakobyan for her assistance to the Research; and Peter Jones, CRRC-Armenia International Fellow, and Dr. Vahe Khojayan for proofreading the text. This book attempts to investigate how the global financial crisis impacted the structure of the Armenian economy and the significance of GDP components, as well as the channels (crisis social impact income transmission channels) that significantly affected households (HHs). The findings presented in this book could be used by policy makers in designing economic development and social protection and labor policies, for planning and implementing various measures and programs, and by scholars interested in post-crisis social and economic developments. UDC 338.124.4 ISBN 978-5-8080-1014-7 Khachatryan, V.V.; Terzyan, H.T.; Makaryan, A.R., 2013 Caucasus Research Resource Centers (CRRC) - Armenia, 2013

Abstract: In this book we attempt to investigate how the global financial crisis impacted the structure of the Armenian economy and the significance of GDP components, as well as identify the channels (crisis social impact income transmission channels) that significantly affected households (HHs). The authors classify the industries causing significant changes in GDP growth rates over 3 periods (quarter first 2001 to quarter 2 2008; 2001-2009; and 2001-2011) by estimating the GDP production method equation using real growth rates. Manufacturing, agriculture, and construction all proved to be significant in explaining GDP growth over all the periods. We found that the large percentage of GDP that is concentrated in these industries, combined with their high productivity, are the main reasons they have such a significant impact on real GDP growth. By estimating GDP by expenditure the components equation using real growth rates over the same periods, we show that HH final consumption causes major changes in GDP growth rates after the crisis. The authors investigate the role (rank) various income sources HHs report have on total HH income over three years (2008-2010) for various stratums by estimating generalized ordered probabilistic equations and relying on CRRC Data Initiative/Caucasus Barometer datasets of 2008, 2009, and 2010. In addition, by surveying 384 HHs in Yerevan in November 2011, we identify income sources that caused significant changes in HH income over four years (2008-2011), and provide a short snapshot of their social impact (nutrition, debts, and social capital) on Yerevan HHs. The results presented in this book could be used by policy makers in designing economic development policies, social protection and labor (SP&L) policies, and various measures and programs.

Key Words: Armenia, the global financial crisis, post-crisis developments, shifts in the structure of economy, household welfare, the role of income sources, transmission income channels and mechanisms, crisis social impact.

Contents
Introduction ........................................................................... 5 I. Post-Crisis Developments: Shifts in the Structure of Economy, and Expenditure ..................................................... 7 1.1 Shifts in the Structure of Economy ......................................... 7 1.1.1 1.1.2 1.1.3 1.1.4 1.2.1 1.2.2 Model Specifications .............................................................. 8 Estimation Results ................................................................. 9 Industry Response ................................................................ 17 Forecasts for 2012 ................................................................ 25 Model Specifications .............................................................. 26 Estimation Results ................................................................. 28

1.2 Shifts in Expenditure by GDP Components .............................. 25

II. Post-Crisis Developments: Impact on Households ..................... 33 2.1 Sensitivity of Armenian Households to Changes in Ranks of Various Income Sources Before and After the Crisis...................................................................... 33 2.1.1 2.1.2 2.1.3 2.1.4 2.1.5 2.1.6 2.2.1 2.2.2 2.2.3 Framework ................................................... 33 Sources of Income ........................................ 34 Changes in the Ranks of Income Sources ........ 35 Changes in Total Income of Households .......... 38 Model Specifications and Variables Used ......... 43 Estimation Results ......................................... 45 Nutrition....................................................... 62 Debts and Loans ........................................... 66 Human Capital .............................................. 69

2.2 Impact on Yerevan Households .............................................. 61

Conclusions and Policy Recommendations ................................ 72 References............................................................................. 77 List of Abbreviations ............................................................... 80 Appendices ............................................................................ 81

Introduction
In low-income countries with underdeveloped financial markets and limited capital flows, the currency crises are orderly devaluations, which are current account events (Bleaney, 2005:1). VAM Food Security Analysis of the World Food Programme (2009), Public Forum Armenia (2008), Canagarajah (2010), and the UNDP (2010) identified various transmission mechanisms through which the Global Financial Crisis had its negative economic impact on Armenia. The majority of the stated channels through which the Global Financial Crisis spread to Armenia were related to the current account events (remittances, export/commodity price decline, tourism receipts, foreign assistance/aid flows), thus causing a depreciation of the Armenian dram (AMD). Rogoff and Reinhart (2009:6) define a currency crash as an annual depreciation in excess of 15 percent 1, hence the crisis Armenia experienced in 2009 was a currency crisis 2. A crisis can be a struggle for some industries/enterprises, households and the government to sustain the current pace of development and/or growth. During a crisis, companies reconsider their strategies; households adopt different coping strategies that could affect their long-term welfare; the government reconsiders certain policies (building automatic stabilizers, and etc.). Post-crisis developments identify the setbacks (areas of concern) that the policymakers must address to build the resilience of the economy. Shifts in the structure of the economy stress the significant role of those industries that affect the real economic growth of Armenia
1

Although the significant devaluation of Armenian dram against US dollar (about 22%) happened on March 3rd, 2009, the developments started in 2008 that resulted in currency crush in 2009. However, we defined the start period of the currency crisis in Armenian the third quarter of 2008, since the Lehman Shock happened on September 15 th, 2008, resulting in negative developments worldwide, but 2009 is viewed as the year of crisis for the purpose of this research. The annual average depreciation of the Armenian Dram against the US dollar was about 20% in 2009 over the previous period.

to be able to estimate GDP contraction that could be caused by the decline of the respective industries hit by different crisis transmission mechanisms (shocks). The significant role of income sources (ranks) in explaining the changes in HH income would be crucial in identifying the social impact transmission channels of the crisis that households are vulnerable to, thus urging them to respond to crisis by adopting such practices that would deteriorate the state of human development. Identification of significant industries and sources of income will assist policy makers in designing and implementing various economic development and social protection and labor (SP&L) strategies, policies or various programs, as well as crisis response measures if Armenia faces transmitted crisis (contagion) in the midterm. Part I investigates the shifts that happened in the economic structure: (1) how the real growth rates of certain industries stopped playing significant role in explaining changes in real GDP growth rates, and how the real growth rates of other industries emerged to do so; and (2) the role of GDP expenditure components (the government and consumer final expenditures, gross fixed capital formation, net exports) in explaining changes in the real growth rates of GDP over 3 periods. Part II identifies the role of income sources (crisis social impact transmission channels) in explaining the changes in overall household incomes nationwide, in rural communities, in urban towns/cities and in Yerevan (the capital) from 2008 to 2010 and in 2011 (for Yerevan only). Based on the survey result, the authors provide a short snapshot of the crisis social impact on Yerevan households, focusing on social capital, nutrition, and debts and loans.

I. Post-Crisis Developments: Shifts in the Structure of Economy, and Expenditure

1.1. Shifts in the Structure of Economy
Gupta et al. (2003:13) 3 find that a crisis preceded by a higher output growth rate experiences a bigger contraction during the crisis period, and after the crisis growth is higher when the bigger the tradable goods sector (2003:16). Armenia was experiencing doubledigit GDP growth rates from 2002 to 2007 (CAGR: 13.1%). Over the same period the compound annual growth rate of the construction industry was 28.4%, while the share of construction in GDP nearly doubled reaching 24.5% in 2007 (12.6% in 2002). Hence, according to Gupta et al. (2003), Armenia in the third quarter of 2008 when the Global Financial Crisis emerged could have anticipated a bigger contraction and slow recovery if the economy had experienced the transmitted currency crisis or orderly devaluation, since prior to 2008 the output growth was especially high and was mainly attributed to the non-traded sector of the economy (construction). In 2008, the GDP growth slowed (6.9% year over year (y/y)), and experienced a bigger contraction in 2009 (-14.1% y/y), while the contraction of the construction industry was much bigger (-41.6% y/y). In 2011, the share of construction in GDP reached 12% comparing to 25.3% in 2008. Obviously, the structure of GDP began to change starting in 2008 (see Appendix C, Tables C1, C2), however, were the industries with changes in shares (% of GDP) still significantly affecting the changes in GDP growth rates? Because of this, we have attempted to test the following hypothesis:

According to the regression results based on the sample of 195 crisis episodes in 91 developing and emerging markets.

Hypothesis 1: Have various industries of economy started contributing

to the changes in the real GDP growth differently from the third quarter of 2008 when the Global Financial Crisis emerged?

We have attempted to identify which industries were significantly affecting the change in the real GDP growth rates attributed to the changes in real growth rates of various industries of economy prior to crisis (2001:1-2008:8), and what changed from 2008:2 onwards.

1.1.1. Model Specifications

Our model is defined as: Real GDP growth rate = f (real growth rate of agriculture, hunting and forestry (A)*; real growth rate of fishing (B); real growth rate of mining and quarrying (C); real growth rate of manufacturing (D); real growth rate of electricity, gas and water supply (E); real growth rate of construction (F); real growth rate of wholesale and retail trade; repair of motor vehicles, motorcycles and personal and household goods (G); real growth rate of hotels and restaurants (H); real growth rate of transport and communication (I); real growth rate of financial intermediation (J); real growth rate of real estate, renting and business activities (K); real growth rate of public administration (L); real growth rate of education (M); real growth rate of health and social work (N); real growth rate of other community, social and personal service activities (O)). Note: Each capital letter corresponds to the respective industry of economy according to the NACE 1.1 Revision of Economic Activity Classification. The dataset contains 44 observations covering the period 2001:1-2011:4 4 (see Appendix A, Tables A1, A2, A3, A4). We estimated the same equation three times for three different sample periods to identify the shifts in GDP structure. The sample period of the first estimation is from the first quarter of 2001 to the
4

We understand that we had to cover a longer period than the sample period. The choice of the sample period was due to lack of data, since the National Statistical Service of the Republic of Armenia (NSS) provides quarterly industry level data (according to the NACE 1.1 revision of economic activity classification) starting from 2001.

second quarter of 2008. The second estimation sample period is from the first quarter of 2001 to the fourth quarter of 2009, and the third estimation sample period covers period 2001-2011: the first quarter of 2001 to the fourth quarter of 2011. By testing variables for normality distribution, and existence of multicolinearity and finding no evidence of violation of OLS assumption, we estimate the following equation:
GDPgrt=0+1Agrt+2Bgrt+3Cgrt+4Dgrt+5Egrt+6Fgrt+7Ggrt+8Hgrt +9Igrt+10Jgrt +11Kgrt+ 12Lgrt+13Mgrt+14Ngrt+15Ogrt+t (1),

where: GDPgrt is the real GDP growth rate in period t. Agrt, Bgrt, Cgrt,...Ogrt are growth rates of respective industries corresponding to the NACE 1.1 Revision of economic activity classification in period t 5. 0, 1, 2,, 15 are model unknown parameters. t is the error term in period t.

1.1.2. Estimation Results

Period 1: Prior to Crisis Prior to the crisis, the changes in the real growth rates of 5 industries (manufacturing; electricity, gas and water supply; construction; agriculture, hunting and forestry; and real estate, renting and business activities) of the economy could explain positive statistically significant changes in the real growth rates of GDP, while real growth of education sector could cause statistically significant decline in real GDP growth rates (see Estimation #1, Table 1). The above-mentioned industries were the main economic growth drivers prior to the crisis and were the source of

In order to estimate GDP production method equation we used real growth rates of the industries due to lack of data, since the National Statistical Service of the Republic of Armenia provides quarterly industry level real data (according to the NACE 1.1 revision of economic activity classification) starting from 2005.

employment for 62.7% of the employed in 2007 6. The role of the only service-oriented industry among the statistically significant industries that had positive impact on GDP growth rates could be attributed to the fact, that it consists of several sub-sectors, and the economy was experiencing the real estate boom prior to crisis. In 2007, these industries accounted for about 60% of GDP. The remaining service-oriented industries (sectors excluding education) and mining and quarrying were experiencing positive growth, but did not contribute to the changes in real GDP growth rates. Therefore, the governments anti-crisis measures, stimulating programs or interventions to increase the supply and/or boost the demand, focused on these industries of the economy could have prevented further GDP contraction both during the crisis and its aftermath. According to estimation results (Estimation #1) 10 percentagepoint (p.p.) change in real growth rates of manufacturing industry could cause 1.5 p.p. change in real GDP growth rates, on average (ceteris paribus). It was predicted that the 10 p.p. change in real growth rates of electricity, gas and water supply industry, on average, would cause 1.06 p.p. change in real GDP growth rates. 10 p.p. change in real growth rates of the construction sector of the economy could, on average cause 1.46 p.p. change in real GDP growth rates. And 10 p.p. change in real growth rates of real estate, renting and business activities would cause 1.2 p.p. change (on average) in real GDP growth rates, while the largest change in GDP growth rate could have been caused by 10 p.p. changes in agriculture (2.18 p.p.). It was surprising to find that the real growth of the education sector could cause statistically significant negative impact on the GDP growth rates (see Estimate #1). Since over Estimation periods #2 and #3, the industry proved to be insignificant we do not focus here on explaining the reasons why the education sector could have had a negative impact on GDP growth rates, which could be attributed to low degrees of freedom (Estimation #1), etc.
6

The sources of all data are various reports and datasets released/published by National Statistical Service of the Republic of Armenia, if not referred otherwise.

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Table 1. Estimated Models for different periods (Method: Ordinary Least Squares (OLS))
Estimation 1: 2001:1-2008:2 Agrt Bgrt Cgrt Dgrt Egrt Fgrt Ggrt Hgrt Igrt Jgrt Kgrt Lgrt Mgrt Ngrt Ogrt Constant Observations R-squared Adjusted R-squared Durbin-Watson stat 0.218 (3.25)*** 0.003 (0.29) 0.015 (0.43) 0.151 (2.38)** 0.106 (1.89)* 0.146 (4.89)*** 0.001 (0.15) 0.009 (0.51) 0.009 (0.10) 0.029 (1.11) 0.121 (2.89)** 0.010 (0.38) -0.092 (-1.97)* 0.006 (0.34) -0.024 (-0.90) 31.95 (1.56) 30 0.85 0.69 1.99 Estimation 2: 2001:1-2009:4 0.156 (2.32)*** 0.005 (0.56) 0.030 (1.14) 0.189 (3.59)*** 0.122 (2.17)** 0.202 (7.27)*** 0.121 (1.95)* 0.004 (0.21) 0.144 (2.45)** 0.034 (1.83)* 0.096 (2.09)** 0.0001 (0.00) -0.005 (-0.97) -0.004 (-0.19) -0.037 (-1.43) -2.44 (-0.22) 36 0.97 0.94 2.00 Estimation 3: 2001:1-2011:4 0.205 (4.44)*** 0.004 (0.44) 0.046 (1.94)* 0.172 (4.01)*** 0.064 (1.65) 0.217 (9.49)*** 0.151 (2.63)** 0.011 (0.59) 0.154 (3.47)*** 0.038 (2.26)** 0.051 (1.43) -0.022 (-0.75) -0.004 (-0.75) -0.002 (-0.09) -0.013 (-0.61) -5.76 (-0.60) 44 0.96 0.93 2.05

Note: t statistics values in parentheses * significant at 10%; ** significant at 5%; *** significant at 1%.

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Looking Forward Using the one-step ahead static forecasting method, we tried to forecast GDP growth rates for the period 2008:3-2009:4 to understand if Armenia could have anticipated GDP contraction ceteris paribus (see Table 2). Based on forecasted GDP growth rates, Armenia could have faced contraction starting from the fourth quarter of 2008 throughout 2009. Therefore, the crisis that was transmitted to Armenia could have merely intensified the GDP contraction.
Table 2. Forecasted GDP Growth Rates for the period 2008:3-2009:4 (Method: One-step ahead static forecast)
Quarter 2008:3 2008:4 2009:1 2009:2 2009:3 2009:4 Forecasted Growth Rates 112.8 93.7 91.6 84.2 82.5 93.3 Actual Growth Rates 115.4 94.1 93.7 81.4 80.3 92.2

Source: NSS online database (April 8, 2012); authorsown calculations.

Periods 2 and 3: Crisis and Post-Crisis periods Based on the results of Estimation #2 and Estimation #3, the model-predicted GDP growth rates did not differ much from the actual GDP growth rates (see Table 3), demonstrating that statistically significant industries over two periods (2001-2009 and 2001-2011) accurately explained the changes in GDP growth rates and predict actual rates at each period of time.
Table 3. Model-Predicted vs. Actual GDP growth rates (%)
Predicted Actual 2009 (Estimation #2) 2010 (Estimation #3) 2011 (Estimation #3) -12.5 2.2 5.0 -14.1 2.1 4.6

Source: NSS, 2012; authorsown calculations.

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Three industries (agriculture, manufacturing, and construction) proved to be consistent in explaining the statistically significant changes in GDP growth rates attributed to the respective changes in industry growth rates over three estimation periods (2001:12008:2; 2001:1-2009:4; and 2001:1-2011:4). Three industries (wholesale and retail trade; repair of motor vehicles, motorcycles and personal and household goods; transport and communication; and financial intermediation) began to be statistically significant in explaining changes in real GDP growth rates from the second estimation period onwards. Real estate, renting and business activities, electricity, gas and water supply no longer explained statistically significant changes in GDP growth rates over the third estimation period (2001:1-2011:4), while the mining and quarrying industry emerged to significantly impact GDP growth rates over the third estimation period. The education sector disappeared from the list of statistically significant industries both over the second and third estimation periods. Overall, during the 2001-2011 period, the industries with share close to 10% of GDP or higher (agriculture, manufacturing, construction 7, and trade (major industries)), the most productive industries (financial intermediation, and mining and quarrying with productivity 8 over 8 million drams per employee in 2010 (see Appendix D, Table D1), and the transport and communication industry with a share of over 6% of GDP (2011) proved to be statistically significant in explaining changes in the GDP growth rate (see Table 4). Hence, the productivity or the share in GDP, matters in contributing to the real GDP growth. The industries with a higher share in GDP contribute to higher GDP growth rates, while the contribution of the most productive two industries that were reporting high growth rates, was relatively low (financial intermediation and mining and quarrying).

Construction was the second productive industry after mining and quarrying and followed by financial intermediation. For the notion of productivity and competitiveness see Porter et al., 2003. Industry value added in constant AMDs (2005=100) divided by number of employees.

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Table 4. Industry characteristics that explain the changes in real GDP growth rates
Industry Mining and quarrying Construction Financial intermediation Real estate, renting and business activities Manufacturing Electricity, gas and water supply Transport and communication Wholesale and retail trade; repair of motor vehicles, motorcycles and personal and household goods Agriculture, hunting and forestry Industry share in GDP Industry Productivity Threshold value: of 6% Threshold value: higher than 5 million in constant AMDs and higher (2005=100) 12.95 million, the most productive industry in 2010 9 <6% (2.9% in 2011) (36% increase over 2006) 8.53 million, the second productive industry in 2010 >6% (12.7% in 2011) (-58% decrease over 2006) 8.35 million, the third productive industry in 2010 <6% (4.0% in 2011) (-9.3% decrease over 2008) 4.41 million, the fourth productive industry in 2010 (7.3% <6% (5.0% in 2011) increase over 2006) 4.20 million (2010), and reporting the greatest rise in >6% (9.7% in 2011) productivity over 2006 (53.6%) 3.72 million (2010), and reporting -21.2% decline over <6% (3.4% in 2011) 2007 >6% (6.3% in 2011) >6% (13.5% in 2011) >6% (20.4% in 2011) 3.63 million (2010), and reporting -9.8% decline over 2007 3.16 million (2010), and reporting 16.8% increase over 2006 Less than million AMDs per employee in 2006-2010

14

Source: NSS, various publications; and authors own calculations.

Since NSS releases annual average employment data only once a year and in December, therefore productivity data of 2010 are reported.

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On the other hand, the emergence of the transport and communication industry as a statistically significant industry could be attributed to the following: 6% of GDP could be a threshold value (this assumption could be tested by incorporating more observations into the model). Although the share of wholesale and retail trade; repair of motor vehicles, motorcycles and personal and household goods industry over 2001-2008 was higher than 10% of GDP over the first estimation period it proved to be insignificant. This could be attributed to lower degrees of freedom (see estimation #1). Further by adding more observations the industry proved to have statistically significant role in explaining the changes in GDP growth rates over the next 2 estimation periods. The same was true in the case of the transport and communication industry. The share of the electricity, gas and water supply industry began to shrink. Therefore, over the third estimation period it proved to be insignificant and reported productivity decline in 2006-2010 (see Appendix D, Table D1). Although the real estate, renting and business activities industry was the fourth productive industry in 2010, it had nearly half the productivity of construction and financial intermediation industries and about 3 times less than that of the mining and quarrying industry. Furthermore, with the gradual decline in the share of the industry over 20012005, the industry share reached 5% of GDP in 2011. This cannot be considered a key factor in making the industry statistically significant, since the productivity of the real estate, renting and business activities industry (4th in 2010) was much lower than that of the three most productive industries. Based on this evidence, we could make another assumption that the industries reporting productivity of about 8 million AMD 10 per employee or higher (or at least higher than 5 million, since there is huge gap between the most productive ones and the productivities of remaining industries over 2006-2010) would turn into statistically significant ones contributing to real changes in GDP growth rates.
10

See footnote 8.

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On the other hand, the number of industries and the industries themselves changed (Estimation #3) which could have affected the GDP growth rates over the first period (Estimation #1), stating the fact that diversification of the economy started taking place as a result of the crisis. However, the vulnerability of the Armenian economy to external shocks and/or current account events and weather calamities (in the case of Agriculture, poor harvest could cause serious GDP contraction) has increased. This increase in vulnerability is due to the increase of the share of statistically significant industries in GDP, the growth of which depends on developments of the global markets (see table 5) to various degrees. If, in 2007, the statistically significant industries comprised 62% of GDP, in 2009 the share of the significant industries increased by 13.8 p.p. reaching 75.8%, while in 2010 and 2011 the share was close to 70%.
Table 5. The role of statistically significant industries in GDP (share in GDP, %)
Industry Agriculture, hunting and forestry Mining and quarrying Manufacturing Electricity, gas and water supply Construction Wholesale and retail trade; repair of motor vehicles, motorcycles and personal and household goods Transport and communication Financial intermediation Real estate, renting and business activities Education Share of statistically significant industries in GDP
Source: NSS on-line database (April 2012).

2007 2009 2010 2011 18.2 16.7 17.2 20.4 2.5 2.9 9.4 8.7 9.5 9.7 3.3 3.1 24.5 18.6 17.1 12.7 12.7 7.2 3.9 4.9 13 6.8 3.6 13.5 6.3 4

3.8 2.8 62.0 75.8 69.7 69.5

It was interesting to note that industries with major government ownership, including public administration, proved to be statistically insignificant in explaining changes in real GDP growth rates. This could mean that the increase of government spending on education,

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health, and social issues could just improve long-term human development accumulation (WB 2011: xxiii). However, these industries that produced more and more value added did not cause statistically significant changes in GDP growth rates. On the other hand, if the government increases spending and invests in longterm human development accumulation, then better educated and trained, healthy employees working for the industries that have statistically significant impact on changes in real GDP growth rates, could support higher growth rates. But, if we look at the industries that played a statistically significant role in explaining changes in real GDP growth rates from 2001 to 2011 (agriculture; mining and quarrying; manufacturing; construction; trade; financial intermediation; transport and communication) that employed 73.7% of the employed in 2010 (see Appendix G, Table G2), we notice that these industries do not require very sophisticated, specific skills and abilities the majority of employees need to possess and/or obtain in order to be hired by these industries. Therefore, the increase in spending on healthcare will allow Armenia to have a healthy labor force, but increased education spending needs to be more targeted, depending on the priorities of the government. If the main strategy is to build a competitive and knowledge-based innovative economy targeted investments in education and other programs would pay off in economic development over the longer-run, hence stressing the strategic choices the government would face.

1.1.3. Industry Response

Construction Between 2001 and 2009, a percentage point change in the growth rate of the construction industry could cause 0.20 p.p. change in GDP growth rates (Estimation #2), and over 2001-2011 it comprised 0.217 p.p. compared to 0.146 p.p. over the period 2001:1-2008:2. It is interesting to note that although the share of the construction industry in GDP declined over 2009-2011, the

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percentage point contribution to changes in real GDP growth rates increased. Based on Estimation #3 results, 10 p.p. decline of the industry growth rate would cause on average 2.17 p.p. decline in GDP growth rate while over the period of 2001:1-2008:2 (Estimation #1), the same decline would comprise 1.46 p.p.. These changes in coefficients could pinpoint the inertia the economy still has, and the higher economic growth can be achieved if the industry experiences positive growth rates. On the other hand, the government faces two choices: either to build knowledge-based and/or diversified economy that would ensure higher economic growth rates in the longer-term, or to increase the spending and/or increase gross fixed capital formation thus experiencing higher growth rates in the midterm and or short-term. Agriculture, hunting and forestry Based on the results of Estimation #3, a percentage point change in the growth rate of the industry could cause 0.205 p.p. change in GDP growth rates. Hence, the -15.8% contraction of the industry in 2010 alone could have caused -3.24 p.p. GDP growth rate decline. And in 2010 the GDP growth could have reached 5.25%, if the industry had reported a 0% growth, other things being equal. The consistency of the coefficient values before and after the crisis along with the rising share of the industry in GDP, stresses the important role of agriculture as the main employment and/or income source for rural community households (45.3 of the employed were engaged in agriculture in 2010 (see Appendix G, Table G2)). Hence the government programs (i.e. subsidies) that were initiated in 2011 11 coupled with better weather condition could have supported higher growth rate of agriculture in 2011. Same type of interventions are expected to support higher industry growth rate in 2012 as well. These programs could be crucial, since the rural communities proved to be very sensitive to income decline received from sales of livestock and crops in 2009 and 2010, (see Part II for detailed analysis of the estimation
11

2011- Government decree No 349 (March 31, 2011) the amendment to the decree No1802 (December 23, 2011); 2012- Government decrees Nos. 75 & 88 (February 2, 2012).

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results, and see Appendix G, Tables G5, G6) 12. In 2009, if the rural households depended on sales of livestock and crops as the major source of income, decline in HH income could have been reported with the probability of 57%, on average, while in 2010 the probability was 43.3%. Higher GDP growth rates could be ensured by large-scale investments in agriculture, government interventions, etc. in the short-run. However, the long-run strategy requires well-designed programs and initiatives in line with overall government economic development strategy, and priorities. Manufacturing After the crisis, the impact of the industry on real GDP growth rates increased. If over the period 2001:1-2008:2 (Estimation #1) 1.0 p.p., increase in the growth rate of manufacturing industry could cause 0.15 p.p. change in GDP growth rate, over the third estimation period, it would have caused 0.172 p.p. change in GDP growth rate, reflecting the importance that the industry gained after the crisis. Upon experiencing contraction of 7.1% in 2009, the industry reported solid growth in 2010-2011 (see Appendix C, Tables C1, C2). Over the same period the share of the industry increased by 1.0 p.p. comprising 9.7 p.p. in 2011. Although the manufacturing industry managed to recover in shorter period, the sectors performance varied, reflecting the developments that happened in Armenia and worldwide during the crisis year and afterwards. In 2009, all sectors reported contraction except three sectors (tobacco products (output real growth: 17.6% y/y); rubber and plastic products (output real growth: 16.7% y/y); basic metals manufacturing (output real growth: about 21% y/y) 13 . The basic metals manufacturing experienced growth in 2010 and

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13

We used CRRC DI/Caucasus Barometer datasets of 2008, 2009 and 2010 to estimate our regression equations (Generalized Ordered Probit regression equations to identify the ranks of various sources of income that causes significant changes in HH income over previous period and probabilities HHs would report the particular choice at (change in income)). Growth rates are calculated according to NACE 1.1 Revision of economic activity classification (Source: NSS various publications).

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2011 at 6.4% (y/y) and at 9.9% (y/y) 14 respectively (output real growth). In 2010, the beverages sector experienced 31.6% real growth of output (y/y) that continued in 2011 as well (19.7% y/y), reflecting an increase in demand in the main destination market (Russia) and trends in other markets (particularly China). In 2011, the output of beverages (13.6%) and basic metals (24.0%) accounted for 37.6% of the output of manufacturing industry in Armenia 15 . These two sectors mainly produce export-oriented items making them vulnerable to global shocks. Mining and quarrying Over 2009-2011, the share of the industry in GDP reached 2.9% (1.7% in 2009) experiencing high growth rates annually. The industry started playing a statistically significant role in explaining changes in the real GDP growth rates over 2001:1-2011:4 (Estimation #3). A percentage point change in the industry growth rate would cause 0.06 p.p. change in GDP growth rate. The industry emerged over the stated period as a significant industry that could impact real GDP growth rates, while real estate, renting and business activities and electricity, gas and water supply industries stopped doing so (see Estimate #3), the share of which in GDP exceeded the share of mining and quarrying industry (respectively 5% and 3.4% in 2011, the same pattern was observed in 2010 and 2009 as well). It would be interesting to trace if the growth rates of mining and quarrying industry start declining gradually or dramatically (decline in productivity) would it cause statistically significant changes in the real GDP growth rates? The answer could be given only by incorporating more observations into the model and based on the estimation results to make judgments and generalizations. Overall, the industrys role in GDP increased, hence increasing the vulnerability of the industry towards transmitted shocks. Even if the industry begins to increase annually by 20%, it would
14

15

2010 and 2011 growth rates are calculated according NACE 2 revision of economic activity classification (Source: NSS, 2012). Source: NSS, 2012.

20

contribute to a 1.3 p.p. increase in GDP growth rates, on average, much less than the manufacturing industry would contribute to the GDP growth rate reporting the same growth rate (3.4 p.p.). Electricity, gas and water supply Over 2001-2011 (Estimation #3) the industry proved to be playing insignificant role in explaining the changes in real GDP growth rates, reflecting the developments in other industries and households response to crisis, since that directly impacted the output growth rates of the industry. The industrys real value added in 2010 was less than the value added reported in 2008 and 2009. The electricity consumption by Armenian households increased by 4% (y/y) in 2010, exports more than tripled (3.16 times), while the overall production of electricity (kilowatt hours) increased by 14.5% (y/y) 16. Hence the contraction of the electricity, gas and water supply industry was due to the decline in gas consumption (cubic meters), attributed to either a mild winter or negative crisis coping mechanisms (either substitution or decline in consumption) or combination thereof. The gas sector declined by 13.3% y/y in 2010 17 . Therefore, the economic growth will impact the growth of the industry either at declining or increasing rates, depending on GDP growth rates and the industries that drive that growth. If we assume, that the consumption of gas, electricity, water by households did not grow much or at least remain unchanged 18, the main growth will be led by various industries. Hence, we do believe, that the industry wont play statistically significant role in explaining the changes in GDP growth rates in the long-run ceteris paribus. Financial Intermediation The industry emerged as a statistically significant industry the real growth rates of which affected the real GDP growth rates
16 17 18

Source: NSS, 2011. Source: NSS, 2011. Birth rates and migration remain at the same level.

21

over 2001:1-2009:4, and proved to do so over 2001:1-2011:4. The share of the industry in GDP doubled over the 10-year period and reached 4% in 2011 compared to 1.9% in 2001. 1.0 p.p. change in the industry growth rate causes 0.038 p.p. change in real GDP growth rate (Estimation #3). The lending to the private enterprises over 4 years increased by 508.5 billion AMD and at the end of 2011 amounted to 688.7 billion AMD; the lending to households increased by 255.3 billion AMD reaching 478.7 billion AMD, with no serious decline in interest rates charged 19. The new pension reform would enable the industry to attract substantial financial resources (deposits by the mandatory pension funds) that could be channeled into different industries of the economy, thus increasing both the share in GDP and the impact it would cause on GDP growth rates, and resulting in decrease in interest rates charged. Increasing lending portfolio will make the industry vulnerable to banking and other type of economic/financial crises, thus requiring tight supervision by respective authorities to prevent future financial crises. Wholesale and retail trade; repair of motor vehicles, motorcycles and personal and household goods (or Trade) From 2002 to 2008 the share of this industry in GDP did not change much (see Appendix C, Tables C1, C2), while in 2009 it increased by 1.1 p.p. and reached 12.7% of GDP, with a -4.8% contraction in 2009 (y/y). Over the 2010-2011 period, the industry experienced growth (respectively 4.8% (y/y) and 4.1% (y/y)). The share of the industry in 2011 amounted to 13.5% of GDP. Compared to the Estimation #2 results, the industry coefficient changed (Estimation #3) and 1.0 p.p. change in the real growth rate of the industry would cause 0.15 p.p. change in GDP growth rate. However, the rising level of indebtedness (as mentioned above) could put the future growth of the industry into a trap if the increase in the turnover of private businesses and respective
19

Source: CBA Online database, 2012.

22

growth in HH income is not high enough to be translated into higher household income to repay debts, increase real consumption, and higher profits for companies to repay loans and invest. Therefore, it would be hard to predict what direction the growth of the industry will have in the midterm (3-5 years) and in the long run. Transport and communication Between 2003 and 2008, the industry was reporting high growth rates (see Appendix C, Tables C1, C2). Compared to 2009, the share of the industry in GDP declined by 0.9 p.p. reaching 6.3%, while in 2010, it reported positive growth at 4.9% y/y, and a slight contraction (-0.2% y/y) in 2011, highlighting the fact that other industries were growing faster than the industry itself. According to the Estimation #3 results, the industry plays a statistically significant role in explaining the changes in the real GDP growth rates, hence 10 p.p. increase in the growth rates of the industry would, on average, cause 1.54 p.p. increase in real GDP growth rate (vs. 1.43 p.p. over the second estimation period). Although the industrys share in GDP was lower than the respective shares of each of the four major industries (agriculture, trade, manufacturing and construction) in 2009-2011 and higher than the shares of newcomers (financial intermediation and mining and quarrying industries), the industry coefficient is pretty close to the coefficient of trade (0.15). On the other hand, the industry supports the operational efficiency of the companies/ industries/households (logistics; efficient use of ICTs (information and communication technology) and/or telecom services; and more productive labor-force), hence translating positive developments/gains of the industry into higher rates of return in other industries. The industry itself depends on the growth of other industries as well (especially transport sector). Therefore, the growth of the transport and communication industry would be mainly driven by growth of other industries

23

and increase of household incomes. If we decompose the industry into the main two sectors of the industry: transport and communication, we could notice that in terms of freights shipped (in thousand tons), the industry in 2008-2010 reported growth after the decline in 2008 (y/y), then experienced decline in 2011 (8% y/y), while freight turnover (in million tons/km) increased by 6.7% y/y 20. This could mean that the crisis affected the strategy of the companies in terms of diversification. If we take into account the fact that the sector is sensitive to the developments in trade (imported items) and export-oriented sectors of economy, the future growth will depend on the rising income level of households and revenues of export-oriented companies, and investment decisions of enterprises. In 2010, the number of Internet subscribers increased 1.82 times over 2009 (2.72 times over 2008). The total revenues of companies received from providing internet services increased by 37.2% y/y in 2011 (at compatible prices) 21, while real revenues received from providing fixed-line and mobile services declined. Hence, the growth of the transport and communication industry would be mainly driven by the transport sub-sector led by growth of other industries of the economy, and new services provided by telecom companies/internet service providers (ISP) and increased internet penetration rates in the longer-run along with increase of the incomes of households. Since education stopped affecting the changes in real GDP growth rates over 2001-2009 and 2001-2011 (Estimations #2 and #3), we do not address the developments in the industry over Estimation #2 and # 3 periods. We dont discuss the response of the real estate, renting and business activities industry either, since it did not prove to significantly change real GDP growth rates over 2001-2009 and 2001-2011.

20 21

Source: NSS, various publications. Source: NSS, various publications.

24

1.1.4. Forecasts for 2012

For all quarters of 2012, positive GDP growth rates are forecasted (based on the one-step ahead static forecasting method), ceteris paribus (see Table 6). If Europe experiences one or multiple debt crises and the negative impact of the crises/crisis is transmitted into Armenia by various transmission mechanisms and/or shocks experienced by other countries, the actual GDP growth rates might not be negative due to the lag period after which the crisis will seriously hit the economy. Therefore, the Armenian economy would be negatively impacted in 2013 if the crisis is transmitted in the last quarter of 2012.
Table 6. Forecasted GDP Growth Rates for the period 2012:1-2012:4
Method: One-step ahead static forecast Forecasted GDP growth rates Actual GDP growth rates
Source: NSS, 2012; and authors own calculations.

2012:1 106.8 105.6

2012:2 108.3 106.6

2012:3 116.8 N/A

2012:4 107.2 N/A

1.2. Shifts in Expenditure by GDP Components

Although the main objective was to trace the shifts observed in the structure of GDP before and after the crisis, in terms of the role statistically significant industries played in explaining changes in real GDP growth rates, we attempted to estimate the changes that could cause changes in real GDP growth rates if different components reported decline and/or growth. We mainly tried to identify the equations that described the shifts in expenditure by major GDP components for three different periods 22 (see Appendix B, Tables B1, B2, B3, B4) as described in the previous section.
22

The choice of the sample period (2001:2011) was due to lack of data, since the NSS of the Republic of Armenia reports growth rates starting from 2001.

25

1.2.1. Model Specifications

Our model is defined as: Real GDP growth rate = f (real growth rate of household final consumption expenditure; real growth rate of government final consumption expenditure; real growth rate of gross fixed capital formation; real growth rate of net exports of goods and services) 23. By testing variables for normality distribution, and finding the evidence of multicolinearity and respectively violation of OLS assumptions, we made the following transformations to identify the equation that describes the pre-crisis period the best (2002:2 2008:2). First we estimated the following equation: GDPgrt=0+1Cgrt+2Ggrt+3Kgrt+4NXgrt+t where: GDPgrt is the real GDP growth rate in period t. Cgrt is the real growth rate of household final consumption expenditure in period t. Ggrt is the real growth rate of government final consumption expenditure in period t. Kgrt is the real growth rate of gross fixed capital formation (GFCF) in period t. NXgrt is the real growth rate of net exports of goods and services in period t. 0, 1, 2,, 4 are model unknown parameters. t is the error term in period t. According to Magnus et al., (2004) the predicted values can be considered good estimators of actual values, so we then used the predicted values of the real GDP growth rates to estimate the following regression equation for the pre-crisis period, by
23

(2),

We used real growth rates of GDP components due to lack of data, since the National Statistical Service of the Republic of Armenia provides quarterly real data of GDP components starting from 2005, and in case of several other variables that could have been included in the model, real values of those variables could be calculated starting from 2003.

26

incorporating values of the real growth rate of gross fixed capital formation lagged 5 periods instead of actual values of the explanatory variable in period t, and values of predicted real GDP growth rates lagged 4 periods: GDPgrestt=0+1Cgrt+2Ggrt+3Kgrt-5+4NXgrt+5GDPgrestt-4+t (3), where: GDPgrestt is the estimated value of the real GDP growth rate in period t. GDPgrestt-4 is the estimated value of the real GDP growth rate lagged 4 periods. Kgrt-5 is the real growth rate of gross fixed capital formation lagged 5 periods. For the second period 2001:1-2009:4, by finding strong evidence of multicolinearity among the real growth rates of government final consumption expenditure and the real growth rate of net exports of goods and services, we estimated first the following regression equation: NXgrt= 0+1Ggrt+ t (4), Then we used the predicted values of the real growth rates of net exports of goods and services to estimate the following regression equation for the period 2001:1-2009:4: GDPgrt=0+1Cgrt+2Kgrt +3NXpgrestt +t where: NXpgrestt is the estimated value of the real growth rate of net exports of goods and services in period t. For the third estimation period 2001:2-2011:4 we found strong evidence of multicolinearity among the real growth rates of gross fixed capital formation and the real growth rates of net exports of goods and services we estimated first the following regression equation: (5),

27

Kgrt= 0+1Kgrt-1+ 1NXgrt +t where:

(6),

Kgrt-1 is the real growth rate of gross fixed capital formation lagged one period. Then we used the predicted values of the real growth rates of gross fixed capital formation to estimate the following regression equation for the period 2001:2-2011:4. GDPgrt=0+1Cgrt+2Kpgrestt +3Ggrt +t where: Kpgrestt is the estimated value of the real growth rate of gross fixed capital formation in period t. (7),

1.2.2. Estimation Results

Prior to Crisis Period 1: 2002:2 2008:2 Estimation # 4
GDPgrestt = 68.8 + 0.152*Cgrt+0.062*Ggrt+0.014*Kgrt-5-0.0008NXgrt+0.165*GDPgrestt-4 (7.16)*** (7.22)*** (6.41)*** (1.94)* (-2.12)** (1.99)* Sample: 2002:2-2008:2; Observations: 25 R-squared: 0.87; Adjusted R-squared: 0.86; Durbin-Watson stat: 1.72 Note: value of t statistics in parentheses * significant at 10%; ** significant at 5%; *** significant at 1%.

Prior to the crisis, the large changes in GDP growth rates, on average, were caused by the changes in the real growth rates of household final consumption expenditure, a major GDP component (see Appendix E, Tables E1, E2), while the largest changes in GDP growth rates were caused by the changes in the real GDP growth rates lagged 4 periods (see Estimation #4). 1.0 p.p. change in the real consumption by the HHs in period t was causing 0.152 p.p. change in the real GDP growth rate in the same period, and the 1.0 p.p. change in GDP lagged 4 periods, was causing 0.165 p.p.

28

change in the real GDP growth rates. Real growth rates of government final consumption expenditure had positive impact on GDP growth rates. 1.0 p.p. change would cause 0.062 p.p. change in growth rate of the real GDP. 1.0 p.p. change in the real growth rates of gross fixed capital formation lagged 5 periods would cause, on average, 0.014 p.p. change in GDP growth rates. As it was expected, the real growth rates of the net exports of goods and services had a negative impact on changes in the real growth rates of GDP. Since the impact was minor, large changes in the net exports of goods and services could have caused a small reduction in the real GDP growth rates. In 2007, 37.3 p.p. the growth in the net exports of goods and services caused, on average, 0.03 p.p. reduction in real GDP growth rate. Hence, over the period 2002:2-2008:2 the increase in imports had a negligible negative impact on the real GDP growth rates. Crisis and Post-crisis Developments Period 2: 2001:1-2009:4 Estimation # 5 NXgrt = 54.01+0.84*Ggrt (1.12) (3.42)***
Sample: 2001:1-2009:4; Observations: 36 R-squared: 0.46; Adjusted R-squared: 0.43; Durbin-Watson stat: 1.95 Note: value of t statistics in parentheses *** significant at 1%.

Over the period 2001:1-2009:4, changes in the real growth rates of government final consumption expenditure explained about 46% 24 of variation in the real growth rate of net exports of goods and services, and 1.0 p.p. real change was causing 0.84 p.p. change in the real growth rate of net exports (see Estimation #5),
24

We deliberately skipped omitted variables test, since we do admit that the other variables could have explained variation in the real growth rate of net exports of goods and services in period t as well, since our purpose is to explain variation by changes in GDP expenditure components, taking into account the fact of the lack of quarterly real data of other variables that could have been included in the model.

29

other things being equal. The relatively high impact of the real changes in the growth rates of the government final consumption expenditure on the real growth rates of the net exports of goods and services, other things being equal, could be explained by the following: while meeting the individual and collective needs of population, mostly imported items (medical supplies, etc.) were purchased, and this new demand caused by the growing spending of the government and resulting in an increase in the real imports led to the growth of net exports of goods and services in period t (while exports reported growth as well). In 2001-2008, economic growth was translated into higher revenues available to spend by the government, thus meeting more individual or collective needs (although due to the crisis, the share of the government final consumption expenditure in real GDP increased by 3.1 p.p. (y/y) in 2009, the expenditure reported negative growth at -1.9% (y/y). However, with other GDP expenditure components reporting decline, this expenditure component could offset some negative impact of other components in 2009, with -1.9% decline in real government final consumption expenditure. The same trend that had been observed prior to the crisis continued as well. Estimation # 6 GDPgrt = 32.9 + 0.38*Cgrt+0.32*Kgrt -0.010*NXestgrt (2.54)** (2.68)** (7.75)*** (-1.79)*
Sample: 2001:1-2009:4; Observations: 36 R-squared: 0.84; Adjusted R-squared: 0.82; Durbin-Watson stat: 1.47 Note: value of t statistics in parentheses * significant at 10%; ** significant at 5%; *** significant at 1%.

Over the period 2001:1-2009:4 the role of real household final consumption expenditure increased (see Estimations #6 and #5) in explaining changes in the real GDP growth rates, other things being equal. 1.0 p.p. change in the final consumption expenditure by households was causing 0.38 p.p. change in GDP growth rate (0.152 p.p. over 2001:1-2008:2). Hence, other things being equal, 4.5 p.p. decline in real final consumption spending by the households, on average, could have caused 1.71 p.p. decline of the

30

real GDP growth rate in 2009. Over the same period, the changes in real growth rate of gross fixed capital formation in period t were causing positive changes in real GDP growth rates in the same period t in comparison to pre-crisis period, when the changes in real growth rates of gross fixed capital formation lagged 5 periods were causing, on average, changes in the real growth rate of GDP in period t. One of possible explanations could be that the investments in fixed capital prior to crises required some time (lagged 5 periods) to become productive and cause real changes in GDP, while in 2009 changes in GFCF were mainly attributed to government interventions (providing loans for purchasing equipment, infrastructure projects, etc.), thus causing positive changes in GDP growth rates in period t. Conversely, the negative impact of the changes in real growth rate of net exports of goods and services increased. 1.0 p.p. change in the real growth rate of the net exports was causing -0.1 p.p. decline in the real GDP growth rate. Period 3: 2001:2-2011:4 Estimation #7 Kgrt = 25.15 + 0.52*Kgrt-1+ 0.27*NXgrt (2.04)** (4.05)*** (2.51)**
Sample: 2001:2-2011:4; Observations: 43 R-squared: 0.57; Adjusted R-squared: 0.55; Durbin-Watson stat: 2.08 Note: value of t statistics in parentheses ** significant at 5%; *** significant at 1%.

Over the second period, the real growth rate of government final consumption expenditure in period t was causing significant growth in the real growth rate of net exports of goods and services in period t, and over the third period, changes in the real growth rates of net exports in period t were causing changes in the real growth rate of gross fixed capital formation in period t (see estimation #7). 1.0 p.p. change in the real growth rate of net exports of goods and services in period t was causing a 0.28 p.p. change in the real growth rate of gross fixed capital formation in period t. Crisis could be viewed as an opportunity to invest in the

31

future growth (government interventions aimed at purchasing machinery and equipment). On the other hand, the government investment in infrastructure, etc. was also boosting GFCF and the growth in the real net imports was translated into new imported items channeled into infrastructure and other projects to boost real growth of GFCF. Over 2001:1-2011:4 the real growth rate of gross fixed capital formation was also explained by its growth lagged 1 period (1.0 p.p. change in period t-1 was causing 0.52 p.p. change in period t). Estimation #8 GDPgrt= 15.25 + 0.52*Cgrt+0.22*Kestgrt + 0.11*Ggrt (0.34) (3.27)*** (4.89)*** (1.71)*
Sample: 2001:2-2011:4; Observations: 43 R-squared: 0.72; Adjusted R-squared: 0.70; Durbin-Watson stat: 1.56 Note: value of t statistics in parentheses * significant at 10%; ** significant at 5%; *** significant at 1%.

In comparison to the pre-crisis period, the role of real household final consumption expenditure increased, and emerged as the main driver (taking into account the share of the expenditure component in GDP) 25 of the real economic growth (if other expenditure components do not report substantial real growth). If prior to crisis 1.0 p.p. change in the real household final consumption expenditure had caused 0.152 p.p. change in the real growth rate of GDP, then over period 2001:2-2011:4, 1.0 p.p. change was causing 0.52 p.p. change in the real GDP growth rate. The real growth rate of government final consumption expenditure in period t over the third period was causing 0.11 p.p. change in the real GDP growth rate in (0.062 p.p. change prior to crisis). The same trend was observed with regard to 1.0 p.p. change in the real growth rate of gross fixed capital formation in period t causing 0.22 p.p. change in the real GDP growth rate over the third period.

25

In 2010 the share comprised 81.8%, and in 2011 the share was equal to 82.5 (See Appendix E, Tables E3, E4).

32

II. Post-Crisis Developments: Impact on Households

Crises have in common a disruptive impact on households welfare and social environment
Marzo and Mori (2012:6)

2.1. Sensitivity of Armenian Households to Changes in Ranks of Various Income Sources Before and After the Crisis
2.1.1. Framework
According to Marzo and Mori (2012), the nature of a particular crisis and the transmission channels associated with it determine the crisis impacts on households. Pernia and Knowles (1998:1) have identified six major transmission channels through which any crisis can exert adverse social impacts. For Eastern Europe and Central Asia, the World Bank (2011:5) has identified four channels that affect the welfare of the households. As for Armenia, crisis social impact exerting transmission channels were addressed by the World Bank (2010) and the VAM Food Security Analysis of the World Food Programme (2009). The transmission channels, by nature, were associated with the sources of income and/or cash, and prices and/or exchange rate adjustments as main crisis transmission channels that exert the negative impact on the households as discussed by these authors. The price channel affects the purchasing power of the same amount earned/received by the households, in the terms of less quantity of goods and services purchased, while other channels directly reduce the amount (disposable income) available for purchasing these items. In cases where households have multiple income and/or cash sources, each of them might differently contribute to the overall

33

changes in household incomes, thus affecting the welfare of a particular household. If crisis had no impact on the disposable (increase or at least maintain the same level) income available to a particular household (HH), it could be assumed that the household would not respond to crisis in terms of adopting negative coping mechanisms and/or strategies, unless the negative impact of the price channel is significant enough to cancel out positive gains (increase in incomes) or reduce the purchasing power of the disposable income. Changes in overall household income respectively depend on how each source of income is seriously affected. Therefore, our primary goal is to identify the role of income sources (rank): HHs with these sources report significant changes in HH income by estimating generalized ordered probabilistic equations and then calculating the probabilities with which changes in HH income are reported over 3 (2008, 2009, 2010) and 4 (in case of Yerevan, including 2011) periods.

2.1.2. Sources of Income

For the purpose of this research we have identified seven income sources that Armenian HHs could earn or receive: 1. informal transfers (received by relatives or friends residing in Armenia) 26; 2. formal transfers (benefits and pensions received from the government, including benefits on maternity leave, students stipends, unemployment benefits, etc.); 3. formal and informal salaries (salary received as a registered or non-registered employee, self-employment (domestic labor market)); 4. remittances (received from abroad by members and nonmembers of a given household (overseas labor markets));

26

Informal transfers received by HHs are income received by others either locally (earned or formal transfers) or from overseas, therefore we view it as a separate income source, a transmission channel for the purpose of this research.

34

5. sales of agricultural goods and livestock (primarily received by rural residents) 27; 6. rents (received from the lease of property, etc. (real estate market)); 7. other 28. Although loans and debts are considered sources of cash and viewed as a channel (credit is considered crisis social impact transmission channel by Pernia et al., 1998) 29, they could also be viewed as a negative coping strategy or mechanism in response to crisis. Due to its dual nature we dont address its role in our main analysis, but present the role of loans and debts for Yerevan households (based on survey data analyzed) in Section 2.2.

2.1.3. Changes in the Ranks of Income Sources

Each income sources had its importance and rank (relative to other sources) in the total income of a particular household. The rank of each source of income could change either due to decrease or increase in income received from the given source or due to new sources of income that boost the total household income (see Table 7). Regardless of the reasons for changes in ranks of income in our model, the role of the ranks of a particular income source in explaining changes in household income is our primary focus, and we leave the reasons why changes in income occurred for the detailed future research, although we briefly address them and explain in details in case of some sources.

27

28

29

This source of income is viewed as a separate channel due to its important role in rural communities for the purpose of this research, although the largest share of employed are engaged in agriculture. All other sources of income are classified as other income sources into a single category. This source of income does not include sales of property and dividends and interests earned. Constricting access to credit for investment or consumption (Pernia et al., 1998).

35

Table 7. Changes in the Ranks of Income Sources

Sources of Increase in Ranks Income informal increase in income received transfers (more relatives/friends/institutions supporting HHs, or increase in the amount provided) loss/reduction in income received from other sources formal increase in income received (either increase transfers in number of HH members contributing to total HH income (employed, pension/ formal and benefits recipients, migrant workers) or informal increase in the amount, or both) salaries loss/reduction in the amount of income received from other sources remittances sales of increase in income received (more agricultural livestock/crops sold or less quantities goods and sold at higher prices) livestock loss/reduction in the amount of income received from other sources rents Decrease in Ranks decrease in income received (fewer relatives/friends/ institutions supporting HHs or decrease in the amount provided) increase in income received from other sources relative to the amount received from the given source new sources of income comprising larger share of HHs income decrease in the amount of income received (reduction in number of HH members contributing to total HH income or reduced amounts, or both) increase in income received from other sources relative to the amount received from the given source new sources of income comprising larger share of HHs income

36

decrease in income received (less livestock/crops sold or more quantities sold at lower prices; or draught and/or weather conditions) increase in income received from other sources relative to the amount received from the given source new sources of income comprising larger share of HHs income increase in rents paid by the tenants decrease in rents paid by the tenants loss/reduction in the amount of income increase in income received from other sources relative to the received from other sources amount received from the given source new sources of income comprising larger share of HHs income

36

Role of Income Sources for Armenian Households Both in Yerevan, urban towns, and rural communities, income received from hired employment comprised the largest share of per capita average monthly household income (see Appendix G, Tables G3, G4) in 2008-2011. Although more than 50% 30 of rural households reported sales of agricultural products as the income source in 2008-2010 31 (see Appendix F, Tables F1, F2), the average per household capita amount received was below the amount received from paid employment. Hence, in general, those households that relied on paid employment (with several members being employed) could ensure more monthly income on average, than sales of agricultural products and livestock could provide in rural communities. The second source in terms of share in the monetary household income was formal transfers in 2008-2011, since about 50% of households were relying on this source of income in 2008-2010. In urban settlements in 2008, the income received from self-employed activities (per household capita monthly average) was about equal to the amounts of informal transfers and remittances received both from Armenia and abroad (per household capita monthly average). Since selfemployment for the purpose of this research is considered earned income and is classified as formal and informal salaries, the developments in the labor market are crucial in explaining changes in total income of households and the respective changes in ranks, especially in urban settlements. In 2009-2010, the role of other sources of income increased, pinpointing the fact the negative crisis coping mechanisms were still in place especially in 2010.

30

31

On the other hand, agricultural products and livestock are the source of the non-monetary income for the rural households and the source of food not purchased. The percentage states the share of households engaged in the direct sales of crops and livestock. Source: CRRC DI/Caucasus Barometer Datasets of 2008, 2009, 2010.

37

2.1.4. Changes in Total Income of Households

Although the nominal per household capita average monthly income 32 was increasing in 2007-2011, the real income 33 reported a 10.7% (y/y) increase in 2008, a tiny increase in 2009 (0.9% y/y), and in 2009-2011, the compound annual growth was 2.32%, while in 2011 the increase was at 0.6% (y/y). The positive increase pinpoints the fact that, on average, households income increase cancelled out the CPI inflation. However, different sources of income reported different patterns of growth, hence determining the changes in income of individual households depending on various sources. It is interesting to note that although average per household capita monthly income was growing in 2008-2010 34, the share of households reporting a decline in their income grew (see Appendix F, Table F3). In 2008, only 25.2% of households reported a decline in their total HH income over 2007, while 29.2% reported an increase. In 2010, 50.8% percent of households reported a decrease in their HH income over 2009 (48.4% over 2008), while an increase was reported by 18.4% (8.2% in 2008). In 2010, in rural communities, both real and nominal per household capita monthly average income increased, which could mean two things: those who reported increase in income managed to receive from major sources such an income that exceeded the previous years income tremendously, thus resulting in an increase in average per capita income; and the NSS of the Republic of Armenia in calculating monthly average per household capita income includes other sources of income (use of savings, etc.), which increased from 2008 to 2010, while in 2011 the income from this source decreased (see Appendix G, Tables G3, G4, G5, G6). In urban towns, a decrease in household income was reported by 18.8% of surveyed households in 2008, while 62.1% of them reported that their household income nearly remained the same
32

33 34

Hereafter in this section by income we mean per household capita average monthly income, if not mentioned otherwise. CPI adjusted (2005=100). CRRC DI/Caucasus Barometer Questionnaire excluded the question on income changes over last 12 months (NYRRLPR), therefore data for 2011 are not available.

38

compared to 2007. In 2010, 34.1% of urban households reported a decline in their income (36.3% in 2009), while 48.1% of them did not experience significant 35 household income changes over 2009 (46.4% over 2008). Yerevan households were more resilient than households in urban towns and rural communities. In 2008, 60.7% 36 of households reported no significant change in household total income over 2007, while in 2010, 54.6% 37 did (56.8% in 2009). Changes in Formal and Informal Salaries The major source of income, real paid income, increased in 2008 by 8.7% (y/y) with the compound annual average growth at 1.27% in 2008-2011, while in 2011 the growth was at 0.58% (y/y). The same trend was observed in rural settlements, where the crisis seriously affected the labor market and resulted in an 11% (y/y) decrease in per household capita real average monthly paid income. After reporting growth of income at 11.1% (y/y) in 2010, in 2011, the growth rate was -7.2% (y/y). If we assume that those who were employed in public/state institutions (polyclinics/ ambulatories, schools, local self-government bodies, etc.) did not experience a decline in nominal income in 2009, the labor market channel seriously affected those who were employed in the private sector in rural communities. Although the nominal paid income in rural settlements reported a tiny decline of 2 AMD (8,717) in 2011, the real paid income could not enable the households receiving this source of income to buy the same quantity of goods and services at the same price in 2010. It is interesting to note that, although in urban settlements, in 20082011, per household capita average monthly real income from paid employment reported an increase (a small increase in 20092010) and Yerevan households were more resilient to changes in the labor market channel in terms of huge decrease in share of households reporting substantial decline in income from this
35 36 37

The amount of total income nearly remained the same over previous 12 months. 62.9% in 2008 (Source: Authors dataset). 61.5% in 2009; 55.4 in 2010; and 54.6% in 2011 (Source: Authors dataset).

39

source over 2008-2011 (see Appendix F, Table F6), average monthly real wages in Yerevan declined by 1.7% (y/y) in 2010 and by 2.9% (y/y) in 2011 (see Appendix G, Table G1). Income received from self-employed activities (nominal and real) both in urban and rural settlements decreased in 2009-2010, reporting an increase in 2011. In urban settlements, the amount of self-employed income in 2011 exceeded that of 2008, thus reporting real growth as well. In 2011 the real growth of this source of income was 41.7% (y/y). In urban settlements real average self-employed income slightly declined in 2011 over the previous year. Changes in Government Benefits and Pensions Nominal per household capita average monthly income received from the government (benefits and pensions) reported a stable increase from 2008 to 2011 in Armenia (see Appendix G, Tables G3, G4). However, the increase was not enough to nullify the CPI inflation in 2010, thus causing a decline in real income received from the government. After reporting a 3.1% (y/y) decrease in real amount received as pensions and/or benefits in 2010, the real amount increased in 2011 by 2.5% (y/y). The value of 2011 was less than the real value of 2009 (see Appendix G, Tables G5, G6). Although the government was increasing the nominal amounts paid to the individuals and/or households, the increased sums were not consuming the increase in prices of goods and serviced purchased owing to CPI Inflation. The trend of 2010 was observed both in rural and urban settlements, while in 2011, in urban settlements the real sums received on average increased by 3.8% (y/y). This could be explained by two things: the average household size in rural communities is greater than the average size in urban settlements and those who became recipients of state benefits and/or pensions on average spent more years in the labor force resulting in greater amounts received; and/or those eliminated from benefits/pensions receivers list were rural residents and/or households.

40

Changes in Sales of Crops and Livestock In rural communities, developments in 2009 owing to the negative impact of the GFC and especially 2010 38 played a crucial role in explaining changes of amounts received from sales of livestock and crops. Both nominal and real amounts received from this source per household capita declined in 2009, reporting a sharp decline of 37.2% (y/y) in real income during 2010 (see Appendix G, Tables G3, G4, G5, G6). Although in 2011, income received from this source exceeded the amount received in 2008 (4,778AMD comparing to 4,670AMD) and experienced 52.6% (y/y) growth over 2010, the purchasing power of the value reduced (3389AMD received from this source comparing to 3991AMD). In 2011, the real amount increased by 41.7% (y/y). In general, those relying on this source of income could have faced difficulties if they had not found access to other sources of income, hence making about 50% of households with this income source sensitive to the changes in income ranks in 2009-2010. Changes in Informal Transfers and Remittances The nominal amount of informal transfers and remittances received from Armenia and abroad per household capita (average monthly) were growing over 2008-2011 both in rural and urban settlements. However, the real values of the transfers and remittances reported slightly different patterns in these two types of settlements (see Appendix G, Tables G3, G4, G5, G6). A slight decrease was reported in 2009 over 2008 in both settlements, then significant increase in 2010, while in 2011 in rural communities the real amounts received, on average, both exceed the amount of 2010 and were the largest in four-year period (2542 AMD (2011) comparing to 1667 AMD (2008)), while in urban settlements a real decrease of 9.8% was reported in 2011. It is interesting to note that the real decline started in 2008 in rural communities that continued up to 2010. Overall, the share of households in the
38

Financial difficulties to cultivate crops owing to higher prices of imported fertilizers and seeds, etc., debts and/or loans repaying problems causing livestock to be slaughtered (UNWFP, 2010); and natural calamities in 2010 (Source: Ministry of Agriculture, 2011).

41

entire sample that stated remittances and transfers received from migrant workers and relatives/friends living abroad nearly remained the same 39 in 2008-2010 (see Appendix F, Tables F1, F2). Changes in Other Sources of Income On average, both in rural and urban settlements, the reliance of this type of income increased in 2009-2010 due to the negative impact of the crisis and the natural disasters of 2010 in both rural and urban settlements. Although in 2011 both real and nominal values of per household capita average monthly other income decreased in rural and urban settlements still the values were higher than in 2008 but less that the values of 2009. Overall, based on analysis we could have expected that in 2008, the particular type of settlement would not explain changes in total household income. From 2009 to 2010, in rural communities, the households were, in general, sensitive to amounts received from the sales of crops and livestock, explaining the major changes in total household income. Therefore, this stratum could have emerged as a statistically significant one. In 2009, urban settlements households showed some resilience because of the reliance of other types of income and the increasing role of the governments benefits and pensions, in general, to cancel out the negative developments in the labor market (especially from self-employed activities). Therefore, the role of other sources of income could have been stressed. In general, in 2010, the reliance on other types of income sources increased that might mean that urban settlements households were more sensitive to income changes, and this type of settlement could have had a significant role in explaining changes in HH income. Therefore, we would rely on our econometric models to justify our identified patterns, and identify the role of various sources (ranks of sources) in reporting statistically significant changes in total household income, and the type of settlement to do so.

39

16.9% in 2009; 17.1% in 2010; and 15.9% in 2011.

42

2.1.5. Model Specifications and Variables Used

P (NYRRLPR=j) = F (11INCRAAB1, 12INCRAAB2, 13INCRAAB3, 14INCRAAB4, 21INCRARM 1, 22INCRARM 2, 23INCRARM 3, 24INCRARM 4, 31INCRAAG 1, 32INCRAAG 2, 33INCRAAG 3, 34INCRAAG 4, 41INCRASL 1, 42INCRASL 2, 43INCRASL 3, 44INCRASL4, 51INCRAGO1, 52INCRAGO2, 53INCRAGO3, 54INCRAGO 4, 61INCRARE 1, 62INCRARE2, 63INCRARE 3, 64INCRARE4, 71INCRAOT 1, 72INCRAOT2, 73INCRAOT3, 74INCRAOT4, 75INCRAOT5, 81STRATUM1, 82STRATUM2, 83STRATUM3, j) where: P (NYRRLPR=j) is the probability of reporting the jth choice of overall HH income change over previous year in the ith household (j=1 (if HH reported total income decrease over previous year, excluding income from sales of property or vehicles), 2 (if HH reported no substantial change in total income over previous year, excluding income from sales of property or vehicles), 3 (if HH reported total income increase over previous year, excluding income from sales of property or vehicles)). INCRAAB1, INCRAAB2, INCRAAB3, INCRAAB4 are ranks of money from family members, relatives, or friends living elsewhere in Armenia (dummy variables scored 1 if for the ith household the respective source of income is ranked 1, 2, 3, 4 and 0 otherwise). INCRARM1, INCRARM2, INCRARM3, INCRARM4 are ranks of money from family members, relatives, or friends living in another country (dummy variables scored 1 if for the ith

43

household the respective source of income is ranked 1, 2, 3, 4 and 0 otherwise). INCRAAG1, INCRAAG2, INCRAAG3, INCRAAG4 are ranks of cash sales from agricultural products (dummy variables scored 1 if for the ith household the respective source of income is ranked 1, 2, 3, 4 and 0 otherwise). INCRASL1, INCRASL2, INCRASL3, INCRASL4 are ranks of aggregated earned income (salary) of all household members, except sales of agricultural products (dummy variables scored 1 if for the ith household the respective source of income is ranked 1, 2, 3, 4 and 0 otherwise). INCRAGO1, INCRAGO2, INCRAGO3, INCRAGO4 are ranks of pensions and government benefits (dummy variables scored 1 if for the ith household the respective source of income is ranked 1, 2, 3, 4 and 0 otherwise). INCRARE1, INCRARE2, INCRARE3, INCRARE4 are ranks of Income from renting of property, vehicles, or appliances (dummy variables scored 1 if for the ith household the respective source of income is ranked 1, 2, 3, 4 and 0 otherwise). INCRAOT1, INCRAOT2, INCRAOT3, INCRAOT4, INCRAOT5 are ranks of other sources of income (dummy variables scored 1 if for the ith household the respective source of income is ranked 1, 2, 3, 4, 5 and 0 otherwise). STRATUM1 is a dummy variable scored 1, if the respective household is Yerevan resident, otherwise 0; STRATUM2 is a dummy variable scored 1, if the respective household is urban town resident, otherwise 0; STRATUM3 is a dummy variable scored 1, if the respective household is rural community resident, otherwise 0 40. j is the error term.
40

Sources: CRRC DI/Caucasus Barometer Datasets and questionnaires of 2008, 2009, 2010 and survey results conducted by the authors in November 2011 in Yerevan. In our questionnaire, we incorporated the same questions the data of which were used for other models to estimate Yerevan equations and ensure consistency. For sample description, see Section 2.2 and Appendix I, Tables I1 and I2.

44

2.1.6. Estimation Results

Prior to the Crisis (2008) First, we identified the sources of income were causing statistically significant changes in total household income. Then we left only those sources that were at most significant at 25% and then estimated the regression equations again to calculate the respective probabilities of ranks of various income sources causing respective changes in household income, other things being equal.
Table 8. Estimation results for the generalized ordered probabilistic regression equations, 2008 41, 42
Model1 (Sample2008) INCRAAB1 INCRARE2 INCRARM1 INCRASL1 Akaike info criterion Included observations: NYRRLPRt -0.39 (-2.48)*** -0.66 (-1.61) -0.23 (-2.28)** -0.38 (-6.56)*** 1.92 1772 Model2 (Yerevan2008) INCRAAB3 INCRARM2 INCRAGO2 Akaike info criterion Included observations: NYRRLPRt 1.54 (2.07)** -0.54 (-2.14)** -0.14 (-1.11) 1.82 377

Note: value of z statistics in parentheses * significant at 10%; ** significant at 5%; *** significant at 1%.

Table 9. Results of Estimated Models in terms of Probabilities, 2008

Sample Probabilities P (j=1) P (j=2) P (j=3) 0.261 0.574 0.424 0.211 0.582 0.414 0.264 0.573 0.421 Yerevan Probabilities P (j=1) P (j =2) P (j =3) 0.363 0.565 0.072 0.008 0.266 0.726

Variables INCRAAB1 INCRARM1 INCRASL1

Variables INCRAAB3 INCRARM2

41 42

Source: CRRC DI/Caucasus Barometer Dataset of 2008. The stratums that proved to be insignificant are not reported in this section, rather than are presented in Appendix H, Tables H1 and H2.

45

As expected, no particular type of settlement could cause significant changes in household income. The sample households were sensitive to the changes in informal transfers, remittances from abroad, and salaries (see Table 8), ranked as the first source of income 43. If a household depended on paid salaries as a first source of income in 2008 due to several things: another household member had found a job, or the total sum of salaries received by household members had increased, or owing to the loss of other sources the paid salaries had emerged as the primary source, or in 2008 this source was still ranked as the first source as in 2007, and etc. (see Table 7), the probability of reporting a decrease in HH income 44 over 2007 by the household was 26.1%, on average, while the probability of reporting an increase in household income was 42.4% (see Table 9). However, the probability of reporting no substantial changes in the household income over 2007 by a household was 57.4%, on average, if a household had relied on this type of income as its first income source. A household depending on remittances from abroad as the first source of income would have reported increase in income over 2007 with probability of 41.4%, on average, while the probability of increase in household income over 2007 while relying on informal transfers as the first income source by a household was 42.1% (see Table 9). The domestic labor market had an important role in explaining changes in household income in Armenia, in general. If in a household another member could find a job, or increase in total income received from paid employment, or just reporting paid salaries as the major source of income by household, thus making salaries the first income source, it would significantly affect the

43

44

We consider the ranks of each income source. A household with paid salaries being ranked as the first source of HH income could retain its rank over several years, either with substantial decrease or increase in the amounts received from this source, with no substantial changes in amounts received from other sources. The primary interest was the rank of the income that could have been either changed or remained the same over previous years due to several reasons. Hereafter HH monthly average income from all sources.

46

changes in household income. This was not the case in Yerevan 45. In general, one of the possible explanations could be the following: among Yerevan households those who became employed were not the only members having paid jobs and with someone else entering labor market paid salaries could be still ranked as the first source of income. But on the other hand, if a member had lost a job but still other members were employed or the sum of total income from paid salaried had decreased, the household could report a decrease in total household income (other things being equal) due to decrease in paid salaries still being ranked as the first income source. Hence, negative developments in the labor market would have influenced a Yerevan household without loss in income source ranks, on average, thus making this source as the major channel of crisis social impact transmission. In Yerevan, about 88% reported paid salaries (from self-employed activities, formal and informal jobs) as the source of income (see Appendix F, Table F4). The average number of employed per household with this source of income was 1.73 in 2008 (see Appendix F, Table F 8). If overseas relatives increased or started sending remittances to an Armenian household exceeding the amount of previously first ranked source of income, this would make Armenian household vulnerable to the negative developments in overseas labor markets. But, if one of the household members became a migrant worker or the amounts sent by the migrant work turned this source into the first ranked one, it could have made the particular household both vulnerable to developments in overseas and domestic labor markets, since upon return migrant worker might have had difficulties in finding a job in different settlements if domestic labor market had been seriously hit. In Yerevan, if
45

Yerevan stratum proved to be insignificant over 2008-2010 using CRRC DI/Caucasus Barometer Datasets of 2008, 2009, 2010, then by replacing Yerevan Stratum data with our data, Yerevan proved to be insignificant again. Therefore we report Yerevan results separately by relying on our dataset, since over 4 year-period we trace changes that were reported by the same sample of households, allowing us to identify some patterns, etc., which could not be the case if we use CRRC DI/Caucasus Barometer Datasets.

47

money from family members, relatives, or friends living in another country were the second source of income, the particular household would have reported a decrease in overall household income over 2007 with probability of 0.8%, while the probability of reporting increase in household income was 72.6% (see Table 9). In 2008, Yerevan households reported an increase in income over 2007 with probability of 7.2% if informal transfers from relatives and friends residing in Armenia were the third ranked income source. Meanwhile, a decrease in income could have been reported with probability of 36.3% (see Table 9). During the Crisis (2009) The ranks of income sources that were causing statistically significant changes in household income, in general, partially reflected the developments that happened in the year of crisis in rural communities. Being a rural community resident would explain changes in household income in 2009 (see Table 10). If a particular household resided in a rural community, the probability of reporting an increase in household income over 2008 was 23.7%, while the probability of household income decrease was 46.8% (see Table 11). The sales of crops and livestock ranked as the first or second source of income began to explain the changes in Armenian households in general (as the first income source in rural communities). If this income source had been the first ranked in 2009, due to the decrease in the amounts received from other sources, or an increase in sales (either more crops produced or forced sale of livestock to ensure daily needs and repay debts) or whatever the reason might have been (retained the rank with substantial changes or no changes at all, other things being equal) the household would have reported an increase in rural household income with a probability of 62.3% (69.3% in Armenia, in general), while decrease could have been reported with the probability of 57.1% (66.3% in Armenia). If, in general, sales of crops and livestock had been the second source of income for an

48

Armenian household in 2009, an increase in HH income over 2008 could have been reported with the probability of 52.0%, while a decrease would have been reported by a household with the probability of 40.9%. In cases of loss of income from sales of crops and livestock, the households had to depend on other sources of income to overcome the crisis. Formal transfers ranked as the first income source were causing significant increase in overall household income over 2008 with the probability of 55.8% in rural communities (52.2% in Armenia), while a decrease could have been reported with the probability of 47.6% (41.3% in Armenia). Other sources of income played a significant role in explaining changes in household income that could be due to changes in some sources of income or other circumstances. If the household in rural communities had depended on other sources of income as the primary source of income (or it was the second ranked income sources as in 2008), the probability of reporting a decrease in household income over 2008 would have been 54.0% (48.0% in Armenia), while in case of the second ranked income the probability of reporting a decrease in household income could have been, on average, 25.1% (19.8% in Armenia), other things being equal. Depending on rents as the first sources of income both in rural communities and Armenia, in general, would either cause increase or decrease in household income with rather different probabilities. In 2009, the decrease in HH income over 2008 could have been reported with the probability of 79.1% in rural communities (73.6% in Armenia), while the increase in income could have been reported with the probability of 80.3%, (75.4% in Armenia). The probability of reporting no change (or a slight change) in household income over 2008 was 19.7% in rural communities (24.6% in Armenia).

49

Table 10. Estimation results for the generalized ordered probabilistic regression equations, 2009
Model1 (Sample 2009) INCRAAG1 INCRAAG2 INCRAGO1 INCRAOT1 NYRRLPRt* -0.65 (-8.23)*** -0.25 (-2.63)*** -0.26 (-3.90)*** -0.43 (-2.45)*** 0.38 (2.38)** -1.11 (-2.41)** -0.30 (-3.05)*** 0.31 (3.23)*** 1.92 1780 Model2 (Rural commun. 2009) STRATUM3 INCRAAG1 INCRAGO1 INCRAOT1 INCRAOT2 INCRARE1 INCRARM1 INCRASL2 Akaike info criterion Included observations: NYRRLPRt* -0.21 (-3.32)*** -0.47 (-5.17)*** -0.24 (-3.47)*** -0.40 (-2.27)** 0.39 (2.43)** -1.10 (-2.38)** -0.29 (-2.85)*** 0.30 (3.14)*** 1.92 1780 Model3 (Yerevan 2009) INCRAAB3 INCRARM2 INCRAGO2 Akaike info criterion Included observations: NYRRLPRt* 1.54 (2.07)** -0.54 (-2.14)** -0.14 (-1.11) 1.82 377

50

INCRAOT2 INCRARE1 INCRARM1 INCRASL2 Akaike info criterion Included observations:

*

Note: value of z statistics in parentheses

significant at 10%; ** significant at 5%; *** significant at 1%.

50

Table 11. Results of Estimated Models in terms of Probabilities, 2009

Variables INCRAAG1 INCRAAG2 INCRAGO1 INCRAOT1 INCRAOT2 INCRARE1 INCRARM1 INCRASL2 Sample Probabilities P (j=1) P (j =2) P (j =3) 0.663 0.307 0.693 0.409 0.480 0.520 0.413 0.478 0.522 0.480 0.439 0.561 0.198 0.736 0.429 0.218 0.528 0.246 0.469 0.531 0.472 0.754 0.531 0.469 Variables STRATUM3 INCRAAG1 NCRAGO1 INCRAOT1 INCRAOT2 INCRARE1 INCRARM1 INCRASL2 Rural communities Probabilities P (j=1) P (j =2) P (j =3) 0.468 0.445 0.237 0.571 0.377 0.623 0.476 0.442 0.558 0.540 0.400 0.600 0.251 0.791 0.496 0.278 0.531 0.197 0.429 0.528 0.469 0.803 0.571 0.472 Variables INCRAAB3 INCRARM2 Yerevan Probabilities P (j=1) P (j =2) P (j =3) 0.363 0.565 0.072 0.008 0.266 0.726

51

51

If a household member was forced to move to Russia or another country (or continued working there in 2009) as a migrant worker to provide the highest income available to a household (or the migrants remittances were the first ranked source of income in 2009 as in 2008), or amounts of money sent by relatives from abroad increased (or at least were at the level of 2008), thus making remittances the first source of income (or whatever the reason was for turning remittances into the first source of income could have been), an increase in household income over 2008 could have been reported with the probability of 57.1% in rural communities (53.1% in Armenia), while decrease in household income would have been reported with the probability of 49.6% (42.9% in Armenia). However, maintaining the first rank (even in some cases with decrease in amounts received) could have been referred to the fact that decline from migrant resources was substituted by an increased flow of remittances from non-immediatefamily sources (WB 2010: 8), while in 2009, there was an appreciable decline in external migration, compounded by an increase in return migration (WB 2010:9). Finding a new job by a HH member previously unemployed (with no HH member in the labor market) or decrease in salary or loss of job by a HH member/s for whatever the reason, thus making salaries second ranked HH income source, could have caused a decrease in HH income over 2008 with the probability of 27.8% in rural communities (21.8% in Armenia). Increase in HH income could have been caused with the probability of 47.2%, on average (46.9% in Armenia). In general, the role of the labor market was stressed. This means that although household members might have experienced some income decline or if any member could have lost her/his job while others had maintained it, no changes in the rank of paid salaries would have been reported. This resulted in an increased importance of other income sources or no change in the ranks of other sources of income, if a household had not adopted any crisis coping mechanism. Formal transfers and remittances from abroad ranked as the first income source could mean that the social impact of the crisis that was transferred to the household

52

through various transmission channels, namely labor market. The rank of official transfers stressed the role of the government in fighting the negative impact of the crisis. Yerevan households proved to be resilient in the year of crisis, since the same ranks of the same sources of income as in 2008 could cause changes in household income over 2008 in the year of crisis. Only 20% of Yerevan households that had this source of income reported a decrease (see Appendix F, Table F5) from this source of income in 2009, in general (y/y), average monthly real income reported a 6.2% (see Appendix G, Table G1) increase (y/y), while unemployment rose by 6% (y/y) reaching 29.7% (see Table 16). This so-called resilience or inertia could have been explained by the composition of the employment structure. About 53.6% of those who reported the industry of their employment in Yerevan households (see Appendix F, Table F8) were employed mainly in the industries with major government ownership (public administration (10.5%); education (13.2%); health and social work (7.7%)); trade (18.1%) and financial intermediation (4.1%), the value added of which did not report great changes (see Appendix A, Tables A3, A4). However with GDP contraction of -14.1% (y/y) in 2009, the real increase of salaries by 6.2% (y/y) in Yerevan could have been hardly sustained if GDP had not reported a substantial increase in 2010. Post-Crisis Developments (2010 and 2011) 2010 In comparison to 2009, Stratum 2 (urban towns) emerged as a significant stratum, causing changes in household income in Armenia, in general, along with Stratum 3 (rural settlements), while being a Yerevan household would not cause any significant changes in HH income. The probability of reporting an increase in household income over 2009 was 51.2% if the HH was rural community resident (see Table 12), while the probability of reporting a household income decrease was 35.2% (see Table 15). Being an urban town household would have caused an increase in HH income with the probability of 49.8%, while a decrease in

53

HH income could have been reported with the probability of 22.4%. Depending on sales of crops and livestock by a household as the first ranked income source both in rural communities and urban towns could have caused statistically significant changes in HH income in 2010 over 2009, other things being equal, while depending on this source of income as the second ranked one, could have caused changes in HH income in urban communities as well. Overall, negative developments in agriculture caused changes in HH income in Armenia, in general (see Table 13). Agriculture as an important industry (see Part 1.1) caused changes in GDP real growth rates and spread negative impact to the households in urban and rural communities being involved in sales of produced crops and livestock (cultivated crops and raised livestock by HHs). A rural household could report a decrease in HH income in 2010 over 2009 with the probability of 43.3% (see Table 15) if it had depended on this source of income as the first ranked one (40.5% in Armenia (see Table 15)).
Table 12. Estimation results for the generalized ordered probabilistic regression equations, 2010
Model1 (Urban Towns 2010) NYRRLPRt* STRATUM2 INCRAAB2 INCRAAG1 INCRAAG2 INCRAGO1 INCRAGO2 INCRAOT2 Akaike info criterion Included observations: 0.10 (1.70)* 0.26 (1.79)* -0.25 (-2.86)*** 0.21 (1.96)** -0.53 (-7.62)*** -0.15 (-2.20)** 0.43 (2.21)** 2.00 1732 Model2 (Rural communities 2010) NYRRLPRt* STRATUM3 INCRAAB3 INCRAAG1 INCRAGO1 INCRAGO3 INCRARE2 INCRAOT2 Akaike info criterion Included observations: -0.13 (-2.10)** 0.70 (2.04)** -0.22 (-2.34)** -0.43 (-6.38)*** 0.47 (3.03)*** 1.10 (2.04)** 0.40 (2.08)** 1.99 1732

Note: value of z statistics in parentheses * significant at 10%; ** significant at 5%; *** significant at 1.

54

Informal transfers from Armenia as the second ranked income source could have caused an increase in HH income with the probability of 50.5% in urban towns (49.8% in Armenia), while in rural communities, the emergence of this source of income as the third ranked income source would cause increase in HH income with the probability of 53.0%. Depending on other sources of income as the second ranked income source that could be the result of negative coping strategies, or whatever the reason could have been, would have caused an increase in HH income in urban towns with the probability of 52.1% (51.0% in Armenia). The role of informal transfers being ranked as the second or third ranked income source stressed the role of relatives in Armenia to cope with the negative effects of the crisis. If a household either in a rural or urban community or in Armenia, in general, reported formal transfers as the first source of income, the decrease in HH income over 2009 could have been caused with the probability of 52.0% in rural communities (48.4% in urban communities), while in Armenia the probability would have been 50.4%, in general. Formal transfers being ranked as the third source of income in the rural communities and as the second ranked in urban towns (second ranked in Armenia) started playing an important role in explaining changes in HH income over 2009. The emergence of formal transfers as a significant source of income stresses the role of government expansionary fiscal policy to fight the negative social impact of the crisis.

55

Table 13. Estimation results for generalized ordered probabilistic regression equations, 2010
Model1 (Sample 2010) INCRAAB2 INCRAAG1 INCRAAG2 INCRAGO1 INCRAGO2 INCRAOT2 Akaike info criterion Included observations: NYRRLPRt* 0.26 (1.75)* -0.28 (-3.26)*** 0.19 (1.83)* -0.53 (-7.58)*** -0.15 (-2.17)** 0.42 (2.17)** 2.00 1732 Model2 (Yerevan 2010) INCRASL2 INCRAGO1 INCRAGO2 Akaike info criterion Included observations: NYRRLPRt* 0.40 (1.32) -0.36 (-1.54) -0.20 (-1.66)* 1.82 377

Note: value of z statistics in parentheses * significant at 10%; ** significant at 5%; *** significant at 1%.

Table 14. Results of Estimated Models in terms of Probabilities, 2010

Variables INCRAAB2 INCRAAG1 INCRAAG2 INCRAGO1 INCRAGO2 INCRAOT2 Sample Probabilities P (j=1) P (j=2) P (j=3) 0.224 0.502 0.498 0.405 0.463 0.537 0.242 0.503 0.497 0.504 0.411 0.589 0.359 0.482 0.518 0.176 0.490 0.510 Variables INCRAGO2 Yerevan Probabilities P (j=1) P (j=2) P (j=3) 0.281 0.551 0.169

Table 15. Results of Estimated Models in terms of the Probabilities, 2010

Variables STRATUM2 INCRAAB2 INCRAAG1 INCRAAG2 INCRAGO1 INCRAGO2 INCRAOT2 Urban Towns Probabilities P (j=1) P (j=2) P (j=3) 0.284 0.498 0.498 0.203 0.495 0.505 0.371 0.475 0.525 0.218 0.498 0.502 0.484 0.421 0.579 0.337 0.487 0.513 0.161 0.479 0.521 Variables STRATUM3 INCRAAB3 INCRAAG1 INCRAGO1 INCRAGO3 INCRARE2 INCRAOT2 Rural Communities Probabilities P (j=1) P (j=2) P (j=3) 0.352 0.482 0.512 0.140 0.470 0.530 0.433 0.450 0.550 0.520 0.401 0.599 0.200 0.498 0.502 0.071 0.385 0.615 0.218 0.501 0.499

56

Table 16. Unemployment rate in Yerevan, 2008-2011 (%)

Unemployment rate Yerevan 2008 23.7 2009 29.7 2010 29.9 2011 30.2

Source: NSS, various publications.

In 2010, a decrease in HH income over 2009 could have been reported with the probability of 17.6% in Armenia (16.1% in urban communities, 21.8% in rural communities), if other sources of income were the second ranked source of income. Comparing to 2009 estimation results, the probability of reporting a decline in HH income decreased, and it stopped playing a statistically significant role as the first ranked source of income. However, the emergence of other sources of income in 2010 in reporting changes in HH income over 2009 might stress the role of crisis-coping mechanism that some HHs adopted, in light of the sluggish state of the labor market (number of employed in Armenia increased by 32.4 thousand people reaching 1,185.2 46 thousand people, while unemployment in Armenia increased by 0.3 p.p. in 2010 reaching 19 p.p.,) 47, and slight increase in remittances sent from abroad (see Table 19) due to increase in migrant remittances (external migration) or from non-immediate-family sources that might have resulted in positive gains probably in 2011. In comparison to 2009, salaries being ranked as the second source of HH income stopped playing a key role in explaining changes in HH income, reflecting the developments in the labor market. Average monthly real wages declined in 2010 in comparison to 2009 in Armenia by 1.2% (see Appendix G, Table G1), in general and particularly in Yerevan. The decline in real wages coupled with the increase in food prices index (see Appendix J, Table J2) could have caused serious social impact and would have negatively impacted HHs in rural communities, urban towns and in Yerevan (See Part 2.2).

46 47

Source: NSS, 2012. Source: NSS, 2012.

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In Yerevan, changes in HH income could have been caused by formal transfers being ranked as the second source of income reflecting the changes in the labor market. This means that the first ranked source of income was of high importance, ensuring the largest share of income for HH, in general. The decrease in HH income could have been caused with the probability of 28.1%, while the increase in HH income might have been reported with the probability of 16.9%, if formal benefits were ranked as the second income source. This could mean that Yerevan labor market was still in a sluggish state and could not increase its demand much on new employees, and the growth of overseas labor markets were slow. The unemployment in Yerevan in 2010 increased by 0.2 p.p. (y/y) reaching 29.9% (see Table 16), number of employed increased only by 4.4 thousand people (reaching 340.2 thousand employed), real monthly average salaries declined by 1.7% (see Appendix G, Table G1). On the other hand, the HHs with employed members mainly relied on salaries as the main source of income. 81.7% of households (that reported having this source of income) reported that paid salaries comprised more that 70% of their total household income (sum of amounts received from all sources of income), while for the 90.5% of households (having this source) the share of salaries accounted for more than 50% (see Appendix F, Table F7). 2011 (Yerevan) Regarding the labor market of Yerevan, the sluggish state (decline in number employed by 3.9 thousand people reaching 333.3 thousand employees, accompanied with decline in real salaries (see Appendix G, Table G1)) could be explained by the following: In 2011, in our sample, 31.3% of those reporting having a job (reporting sector of employment), were employed mostly in state owned institutions/companies (see Appendix F, Table F8) where employment was stable experiencing slight increase in

58

2010 over 2009 48 and would probably report a slight increase in employment in the future (if Armenia does not emerge as a Higher Education hub, or a Regional Healthcare Services Provider) with no major changes in nominal salaries. With a trade boom before the crisis, the growth of the industry was at a decreasing rate where 18.2% of the employed were working in our sample; the industry probably would experience growth at a decreasing rate (if the real income of HHs does not grow high enough to boost consumer spending, thus resulting in higher growth rates of the industry to create more jobs); and the employment was probably stable without the influx of new employees. Industry (mainly manufacturing and utilities) reported a decrease in the number of employed in 2010 (by about 7,300 people reaching 50,900 people) that continued probably in 2010 or did not report high growth in 2011, where 12.2% of the employed were working in 2011 in our sample, while manufacturing was reporting solid growth in 2010-2011, with utilities sector reporting positive growth only in 2011. In our sample, 9.4% of the employed in 2011 were working in the communication and transport sector; the sector, after reporting growth, experienced a slight decline of 0.2% in 2011, and the employment in 2010 decreased by 700 people (35,600 people in 2010), while in 2011 the number could have increased slightly since increase in real consumer spending with declining share of food spending, could probably mean that the number of internet subscribers or users of other services have increased, thus resulting in more jobs created in the industry that will probably continue in the mid-term, or the growth in employment could be driven by transport sub-sector (see Part 1.1).

48

Source: NSS, 2011.

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Table 17. Estimation results for the generalized ordered probabilistic regression equation, 2011 Model2 (Yerevan2011) INCRASL3 INCRARM2 INCRAGO2 INCRAAB3 Akaike info criterion Included observations: NYRRLPRt* 1.15 (1.32) -0.49 (-2.11)** -0.24 (-1.99)** 0.79 1.19 1.82 377

Table 18. Results of Estimated Model in terms of Probabilities, 2011 Yerevan Probabilities P (j=1) P (j=2) P (j=3) 0.382 0.507 0.111 0.295 0.542 0.164

Variables INCRARM2 INCRAGO2

Note: value of z statistics in parentheses * significant at 10%; ** significant at 5%; *** significant at 1%.

In the above stated industries 71.2% of the employed were engaged in our sample. However, the increase in employment would be primarily led by the private sector. Private sector in Yerevan reported a decline in the number of employed in 2010 compared to 2008 (with slight increase over 2009 49 in 2010), while the state owned institutions reported resilience. Since the government prioritized the list of industrial sectors to support, new jobs would probably be created by these industries (export-led industrial policy strategy 50 adopted on December 15, 2011), or in IT, Hospitality or other sectors in the mid-term. On the other hand, unemployment of 30.2% is a serious challenge that needs to be addressed by the government by designing respective programs and initiating new programs.

49 50

Source: NSS, 2011. Source: http://www.mineconomy.am/up/files/Razmavarutyun_ardyunaberutyun-65.pdf.

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Table 19. Transfer from Abroad to Armenia in 2008-2011 (thousand USD)

Inflow of Transfers 2008 2009 2010 2011 Total money transfers of individuals sent to and received from abroad through 2,270,615 1,575,678 1,627,056 1,960,033 Armenian commercial banks * Non-commercial money transfers of individuals sent to and received from abroad 1,635,307 1,124,119 1,293,736 1,546,959 through Armenian commercial banks ** Source: CBA online Database (last accessed: November 21, 2012). Note: * All transfers of individuals sent to and received from abroad through Armenian commercial banks regardless their nature. ** Non-repayable transfers of individuals which are used for current needs as well as salary sent to and received from abroad.

2.2. Impact on Yerevan Households

Methodology Based on quota-stratified sampling techniques, 384 households 51 were interviewed in Yerevan during November 7-23, 2011 (see Appendix I, Tables I1 and I2) to trace the changes that happened in consumption pattern of main food items, social capital, and debts and loans over 2008-2011 period to portray the long-term crisis impact. For HHs renting apartments in Yerevan, interviewers checked if a particular household moved to Yerevan before 2008 or not (in case of local migrants), or if HH was formed as a household before 2008 or not (in case of couples, or couples with small children) to interview them, since the primary focus was to trace the changes that had happened since 2008 in existing HHs (not newly formed ones since during the crisis they were members of separate HHs). While being interviewed, in general, HHs had to compare average monthly indicators and/or values with the same indicators/values over the previous period. In 2011, Yerevan households had to report evidence as of November 2011, or to compare the average values of 11 months with the respective values over 2010 (or annual values), or based on the estimates to compare 2011 values with 2010 average values.
51

Confidence level: 95%, margin of error: 5%.

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2.2.1. Nutrition
Since calculation of kilocalories consumed daily is a rather cumbersome process and requires a detailed questionnaire to complete, we decided to focus on the following: whether the household managed to maintain the consumption of main/basic items at least on the same level or not. If a particular household managed to maintain the consumption pattern it could mean two things: either a particular HH had not adopted negative crisis coping strategies at all (HH was not affected by the crisis), or even HH had adopted, the nutrition concerns were of high priority to the household (HH was hit by the crisis, however had adopted such strategies that did not affect its consumption pattern). Since price channel negatively impacted HHs, with food and consumer prices indices in rise in 2010-2011 (see Appendix J, Table J2) coupled with decrease in real annual average monthly wages over the same period (see Appendix G, Table G1), we expected that, in general the consumption of main food items had been affected. Therefore we mainly focused on identifying changes in consumption pattern of these items, while relying on statistical data on consumed food dietary energy (see Table 20).
Table 20. Consumed food dietary energy per capita
Yerevan Average daily kilocalories Median (daily kilocalories) Percent of population consuming food with less than 2100 kilocalories daily Percent of population whose daily food ration includes 70% of bread and potatoes
Source: NSS, various publications.

2008 2079 2003 53.1 11.2

2009 1996 1897 66.4 11

2010 1875 1765 72.3 18

2011 2023 2028 56.1 19.4

Table 21. Real* average annual per household capita (member) expenditure
Yerevan Consumer expenditure Food expenditure 2007 30,138 14,274 2008 29,985 13,435 2009 27,747 12,880 2010 26,486 11,852 2011 29,921 12,632

Source: NSS, various publications; and authors own calculations. Note: consumer expenditure were adjusted by consumer price index (2005=100), while food expenditure were adjusted by food price index (2005=100).

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Our survey data shows that substantial changes in the consumption pattern of main/basic food items occurred in 2010, with no reverse trend for 2011 (see Table 22), reflecting the logic behind the expected decline in consumption based on statistical data (rise in food price index, decline in annual average monthly real salary). Our results of 2010 are in line with statistical data. Average per capita daily kilocalories consumed in 2010 declined by 121 kilocalories over 2009 (reaching 1,875 kilocalories), share of population consuming less than 2,100 kilocalories increased by 5.9 p.p. (reaching 72.3%), real spending on food (per household capita average annual) declined by 8% in comparison to 2009 (see Table 21). In 2011, per household capita spending on food (annual average) increased by 6.6% over 2010, per capita average kilocalories consumed daily increased by 263 kilocalories reaching 2,028 kilocalories (higher than in 2008), while share of population consuming less than 2,100 kilocalories substantially decreased by 16.2 p.p. (reaching 56.1%). But if we look at the data on annual average per household capita consumption of main/basic food items in kilograms in Armenia (see Appendix J, Table J1), we can notice that except poultry, wheat flour, and sour cream consumption, a decline was reported in the consumption of other items in 2011 over 2010 in line with our survey results.
Table 22. Changes in Consumption of Main Food Items by Households (N=382) 52
Item Year 2008 2009 2010 2011* 2011/2008 Changes in consumption of food Consumption items over previous period (share of HHs consuming a Maintained at the Reduced Increased particular item) same level 100% 4.20% 92.39% 3.41% 100% 4.72% 91.86% 3.41% 100% 21.00% 74.28% 4.72% 100% 21.26% 73.75% 4.99% 21.58% 73.42% 5.00%

Bread

52

This question was adapted/modified from the questionnaire designed by Anna Makaryan and used for Strategies for Coping with the Effects of the Global Financial Crisis in Rural Armenian Households Policy Report prepared within the framework of Regional Competence-Building for Think-Tanks in the South Caucasus and Central Asia Project and implemented by Norwegian Institute of International Affairs (NUPI).

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Item

Year 2008 2009 2010 2011 2011/2008 2008 2009 2010 2011 2011/2008 2008 2009 2010 2011 2011/2008 2008 2009 2010 2011 2011/2008 2008 2009 2010 2011 2011/2008 2008 2009 2010 2011 2011/2008

Meat

Poultry

Potatoes

Dairy products

Eggs

Pasta

Changes in consumption of food Consumption items over previous period (share of HHs consuming a Maintained at the Reduced Increased particular item) same level 95.03% 35.37% 63.30% 1.33% 95.03% 37.77% 60.90% 1.33% 95.03% 56.38% 41.76% 1.86% 95.03% 57.45% 40.43% 2.13% 57.03% 40.85% 2.12% 97.64% 23.10% 73.75% 3.15% 97.64% 23.62% 72.97% 3.41% 97.64% 41.73% 53.54% 4.72% 97.64% 42.52% 52.76% 4.72% 42.26% 53.02% 4.72% 100% 7.87% 89.50% 2.62% 100% 7.87% 89.24% 2.89% 100% 25.72% 70.34% 3.94% 100% 26.25% 69.29% 4.46% 25.98% 69.55% 4.46% 98.69% 9.74% 88.68% 1.58% 98.69% 9.74% 88.68% 1.58% 98.69% 27.37% 70.00% 2.63% 98.69% 27.63% 69.47% 2.89% 27.63% 69.47% 2.89% 99.74% 7.61% 91.60% 0.79% 99.74% 7.87% 91.34% 0.79% 99.74% 25.20% 73.49% 1.31% 99.74% 25.72% 72.44% 1.84% 25.72% 72.44% 1.84% 100% 6.56% 87.93% 5.51% 100% 6.82% 87.40% 5.77% 100% 23.62% 69.55% 6.82% 100% 24.15% 68.24% 7.61% 24.15% 68.24% 7.61%

Note: In case of 2011, the respondents had to compare average monthly consumption of 11 months of a particular item with the average monthly consumption of the same item over the same period of 2010.

Although these data reflect the trends that happened in Yerevan, urban towns, and rural communities, and if we assume that based on Yerevan data on consumed food dietary energy and spending on food items that food consumption in Yerevan increased, the decrease in rural and urban settlements has cancelled out the increase reported in consumption by Yerevan households,

64

thus resulting in decreasing consumption of main items. Since average per capita daily kilocalories consumed in rural and urban settlements did not report any significant decline (in case of rural settlements average per capita daily kilocalories consumed in 2011 slightly decreased by 43 kilocalories reaching 2,212 kilocalories, while in urban settlements even increase was reported over 2010 53), in general, the decrease in consumption of main items reported by our households and supported by statistical data did not result in decrease in average per capita daily kilocalories consumed. One of the possible explanations could be the following: we were trying to trace the changes in main/basic items, while decrease in meat or other items consumption might have been substituted with the increase of consumption of either proteinrich (for example lentils and beans) or other items to ensure increase in average per capita daily kilocalories consumed by Yerevan households. The other possible explanation could be the following: the rich became richer in 2011 and increased consumer spending, thus resulting in increase in average values of daily kilocalories consumed and spending on food items. Hence, a decrease in consumption of some food items by households, in general, took place that might have been accompanied by a substitution with other products, increase in real average annual (per household capita) expenditure on food items 54. In 2011, 56% of Yerevan population were still consuming food with less than 2100 kilocalories daily, on average, which means, that more than 50% of the population is malnourished, which could cause health issues if increase in income is not high enough to be translated into required calories taken daily. In lieu of some positive shifts, however, number of poor people in Yerevan in 2011 increased by 0.4 p.p. (reaching 27.5% of population).

53 54

Source: NSS, 2012. Source: NSS, 2012.

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2.2.2. Debts and Loans

Here we look at both formal and informal borrowing channels. In comparison to December 2008, at the end of December 2009, the value of loans (in AMD) provided to HHs declined by 24,726 million AMD 55. In case of tightening conditions to provide loans to HHs, the role of informal borrowing could have been stressed. On the other hand, we wanted to investigate if tightening the requirements for providing a loan would have caused an increase in borrowing from pawnshops. We do admit that the number of loan/debt holders is small enough (not representative), however, based on survey results some patterns could be identified. Our results for 2010-2011 (see Table 23) are in line with CBA data, so an increase in total borrowing 56 is due to the increase in number of households that applied and were granted loans from commercial banks/universal credit organizations (UCO) of Armenia, however the amount of loans borrowed might have increased as well. In 2010, out of 78 HHs (20.3%) that borrowed either from pawnshop or commercial bank/UCO, 7 HHs borrowed from both institutions (see Table 23). In 2010-2011, 98 HHs (or 25.5%) reported debts to either friends or relatives (see Table 24), about one-third from formal institutions as well (see Table 24). Consistently, 30 HHs were borrowing from commercial banks/UCOs every year, while 83 HHs were borrowing from relatives and friend each year (see Table 25).
Table 23. Formal borrowing from financial institutions, 2008-November 2011 (No. of HHs)
Institution 2008 2009 2010 2011* Pawnshop 9 9 16 16 Banks/UCOs 43 50 69 72 HHs that borrowed from any of these institutions 52 58 78 85 HHs that borrowed from both types of institutions 0 2 7 3
Note: November 2011; N=384.

55 56

Source: CBA, 2012. The total amount of all loans provided to HHs in AMD by commercial banks was increased by 55.4% in December 2011 compared to December 2010 (Source: CBA, 2012).

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Table 24. Informal borrowing from relatives friends, 2008-November 2011 (No. of HHs)
Informal Borrowing Relatives/friends HHs with informal borrowing and formal borrowing from any type of institution HHs with informal borrowing and formal borrowing from all types of institution
Note: November 2011; N=384.

2008 92 21 0

2009 90 22 1

2010 2011* 98 98 30 4 34 2

Table 25. Frequent Borrowing (borrowed money every year), 2008-November 2011 (No. of HHs)
Borrowed from Pawn shop (N=9, 9, 16, 16) Bank/UCO (N=43, 50, 69, 72) Relatives/Friends (N=92, 90, 98, 98)
Note: November 2011.

2008 7 30 83

2009 7 30 83

2010 7 30 83

2011* 7 30 83

Table 26. Frequency of Informal Borrowing, 2008-November 2011 (No. of HHs)

Frequency Almost every week Every two weeks Once a months Every 2-3 months Every 4-6 months Once a year Total
Note: November 2011; N=384.

2008 10 8 24 16 10 24 92

2009 9 9 24 15 11 22 90

2010 10 9 23 18 10 28 98

2011 12 8 25 17 10 26 98

About 75% of those HHs that were borrowing from friends and relatives were borrowing more than once a year in 2008-2011, with the majority borrowing at least once a month (see Table 26). The most common directions of informal borrowing from relatives and friends were paying utility bills and buying food followed by paying for treatment or taking care of health issues (see Table 28). For formal borrowing from banks/UCOs, buying

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appliances/cars on credit were stated the most by respondents that stated the borrowing directions of the loans taken either from banks or UCOs (see Table 27) in 2008-2011. Buying appliances on credit could mean that bank granted credit to those HHs that were capable of repaying their loans, while HHs that had to borrow to buy food, repay former debts/loans, return debt to food shop, pay utility bills, were borrowing spending directions that could be a sign that these HHs would be vulnerable to future shocks.
Table 27. Spending Directions of formal Borrowing, 2008-November 2011 (No. of HHs)
Pawnshop Bank/UCO (N=9, 9, 16, 16) (N=43, 50, 69, 72) 2008 2009 2010 2011 2008 2009 2010 2011 Repaid former debts 6 4 7 6 8 8 13 17 Repaid debts to food shop 0 0 0 0 3 3 7 4 Health issues/treatment 0 1 2 2 8 9 7 11 Education/tuition fee 2 3 5 5 4 6 7 8 Appliances/car 1 1 2 3 15 19 22 18 N/A 1 2 4 4 14 14 22 25 Spending Direction
Note: November 2011; sum may not add up to the stated number of respondents, since they could have stated several spending directions.

Table 28. Spending Directions of informal Borrowing, 2008-November 2011 (No. of HHs)
Spending Direction Repaid former debts Wedding, funeral, and etc. Repaid debts to food shop Health issues/treatment Education/tuition fee Paid utility bills Bought food Other 2008 16 5 6 16 8 35 39 10 2009 11 4 9 19 8 37 37 10 2010 15 8 7 17 12 35 40 11 2011 12 7 6 18 10 40 39 13

Note: November 2011; N=92, 90, 98, 98; sum may not add up to the stated number of respondents, since they could have stated several spending directions.

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2.2.3. Human Capital

Education Education proved to be resilient to the transmitted crisis. In our sample, there were only two cases where respondents stopped studying due to financial difficulties. In one case, the student decided to stop pursuing a bachelors degree at a public university/institute due to financial difficulties at least for the 2010/2011 academic year. In the second case, the student was forced to apply for permission and was granted a leave for one academic year during 2011/2012 from graduate program at a private university. Overall, in our sample, the number of students enrolled in tuition fee based programs increased in 2009/2010 (see Table 29), due to the increase in enrollment in higher education institutions reflecting the trends reported by the NSS (see Table 30). Taking into account that tuition fee was not the main reason for borrowing from relatives or friends or taking loans, and the number of students enrolled in tuition fee based programs, we could conclude the following: for Yerevan HHs, education is a must and they would do everything to pay the tuition fees; or only those were enrolled that could pay for education.
Table 29. Enrollment in tuition-fee based programs (N=69, 108, 117, 115)
2008/ 2009/ 2010/ 2011/ 2009 2010 2011 2012 Private school (high school, and etc.) 10 12 14 14 State preliminary vocational educational institution 4 4 3 2 State middle vocational educational institution 3 5 12 13 Private middle vocational educational institution 4 8 10 8 Undergraduate program at state university 58 95 100 93 Graduate program at state university 4 3 3 6 Undergraduate program at private university 14 16 18 15 Graduate program at private university 0 1 0 1 Total 97 144 160 152 Enrollment

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Table 30. Number of students enrolled in tuition based programs of Higher Educational Institutions
Armenia Yerevan 2008/2009 95,545 75,502 2009/2010 95,682 76,563 2010/2011 92,394 74,332 2011/2012 81,139 63,421

Source: NSS, various publications.

Health
Table 31. Types of treatment in HHs (N=76, 86, 83, 85)*
Type of treatment Ambulatory Stationary Total 2008 67 24 91 Number of cases 2009 2010 2011* 68 71 70 41 30 32 109 101 102

Note: November 2011; N represents number of HHs that either had cases of stationary or ambulatory treatment or both of them.

Table 32. HHs that every year reported at least a case of treatment
Type of treatment Ambulatory Stationary
Note: November 2011.

2008 40 3

2009 40 3

2010 40 3

2011* 40 3

Table 33. Number of attendances in out-patient institutions per capita

Yerevan 2007 3.6 2008 4 2009 4.4 2010 4.2 2011 4.2

Source: NSS, various publications.

If in case of education our primary focus was enrollment in tuition fee based programs, since those who were tuition exempt students they would have continued their education regardless of changes in HH income. Here, we are interested both in the number of cases and how they paid for treatment. An increase in number of cases is an alarming sign, since if Armenia faces another crisis these families would have difficulties paying for treatment, and

70

people with poor health condition cannot be productive and the number of employed will shrink. In Yerevan, the highest number of treatments was reported in 2009, while in 2010-2011 this trend remained the same (see Table 31). The HHs were seeking mostly ambulatory treatment. In Yerevan, the number of attendances in outpatient institutions per capita increased in 2009 (4.4; 4 in 2008), then after decline remained stable in 2010-2011 at 4.2 attendances (see Table 33). Every year, in our sample, at least one HH member had to have ambulatory treatment in 40 HHs (see table 32). Regarding payment options nearly every fifth HH borrowing from relatives/friends had to pay for treatment with the borrowed money (see Table 28), which was not the case if we consider formal borrowing spending directions (see Table 27).

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Conclusions and Policy Recommendations

Overall, in 2001-2011, the industries with share close to 10% of GDP or higher (agriculture, manufacturing, construction, and trade), the most productive ones (financial intermediation, and mining and quarrying) and transport and communications (with share of about 6%) played a significant role in explaining changes in real GDP growth rates. Large changes could be caused by the changes in real growth rates of agriculture and manufacturing. Therefore, the development of agriculture needs to be of high priority since the largest share of the employed were engaged in agriculture, while diversified manufacturing base would allow Armenia to be more resilient to external shocks, ensure higher productivity and real wages. Ensuring diversified manufacturing base needs to be by establishing large businesses (initially with large state ownership that could gradually decrease over time) to be the drivers of the growth of small and medium-sized enterprises (related and supporting industries) that, in their turn, will boost the competiveness of these enterprises in foreign markets. The most productive industries need to adopt such business practices that will add more value to the products offered in overseas markets. Industries with major government ownership (education, health and public administration) proved to be having statistically insignificant impact in explaining changes in real GDP growth rates, however the increase of government spending on education and health are necessary to improve long-term human development accumulation (WB 2011: xxiii), stressing the need to adopt targeted educational and vocational initiatives and programs to make the industries of high priority to ensure competitiveness of the nation. The priority needs to be on creating an inter-ministerial

72

committee under supervision of Ministries of Education and Science, Economy, and Labor and Social Affairs that will be in charge of designing respective educational policy to educate employees (with higher and/or vocational education) for those industries that will ensure diversification of the economy (productive labor-force and competitive industries). In comparison to 2007, the vulnerability of the economy increased in 2011 attributed to an increase in the share of significant industries in GDP. The economy would be vulnerable to external shocks (decline in commodity prices and demand on major items exported) and nature shocks (weather calamities), thus again stressing the need to build diversified manufacturing base, adopt crops insurance practices, since in 2009 and 2010 sales of corps and livestock as the main source of income of HHs was causing significant changes in income of HHs. With the increase in the share of the real household final consumption expenditure in the real GDP the significance of this expenditure component increased as well, emerging as the major expenditure component causing significant changes in the growth rates of the real GDP. Although the impact of the real growth of government final consumption expenditure and gross fixed capital formation increased over 2001-2011 due to expansionary fiscal policy of the government, the share of GFCF in GDP declined below the 2005 level in 2011 (26.3% vs. 29.8% in 2005), while the share of the government final consumption increased in 2011 comparing to 2008. Since the changes in the real growth rates of net exports were explained by the real changes in the growth rates of the government final consumption in 2001-2009 and the changes in the real growth rates of the net exports explained the real changes in the growth rates of GFCF (period: 2001:2-2011:4) due to government funded infrastructure, other projects, purchase of machinery and equipment as part of GFCF, hence, the role of

73

the government will be crucial in explaining changes in the real growth rates of GFCF. In the mid-term, the favorable tax regimes and other incentives that could be provided by the government would be essential in boosting the real growth rates of GFCF (in terms of private companies investments in capital goods), enabling the creation of more jobs to reduce unemployment owing to rising level of indebtedness of the Armenian households. Government expansionary fiscal policy is temporary and the long-term economic policy needs to be focused on such programs and measures that will create more jobs for households since real growth of household consumption final expenditure could put into trap the real growth of the economy if households reduce real consumption, especially taking into account developments in labor markets during the crisis. In Armenia, in 2008 both domestic and overseas labor markets could attract those in the local labor force and those seeking jobs in Russia, etc., in general. Remittance recipients from non-HH members could rely on relatives employed in other countries to provide the most of HH income thus could have been considered channels that would have transmitted crisis social impact to HHs, if the crisis had begun in 2009. In Yerevan, statistically significant changes could have been caused by informal transfers from relatives residing in Armenia (3rd ranked income sources), and remittances (2nd ranked income source) stating the important role of the labor market channel that could have amplified the shock. In 2009, the emergence of formal transfers and remittances from abroad, other sources of income ranked as the first income source, pinpointed the fact of adopting of crisis coping strategies by HHs to fight negative impact of the crisis, and the sluggish

74

stance of the labor market (rise in unemployment 57 ), while overseas labor markets were playing a significant role in explaining changes in HH income mainly attributed to flow of remittances from non-immediate-family sources (WB 2010: 8) when external migration declined compounded by an increase in return migration (WB 2010: 9). The emergence of formal transfers as statistically significant source of income stressed the role of social policy spending direction. In Yerevan, the same trend was observed as in 2009, due to the industries the majority of HHs were employed by. In 2010, the range of statistically significant income sources reflected negative developments in local labor markets and slow recovery of the overseas labor markets. Significant changes in HH income were caused by formal transfers (1st and 2nd ranked), informal transfers as (1st ranked), and other sources (2nd ranked). Developments in the agriculture sector significantly affected changes in HH income (especially in rural communities), thus rural HHs had to face the negative effects of two shocks: external (prices: in terms of increased prices of fertilizers, etc.) and local (weather calamities). In Yerevan, statistically significant changes in HH income could have been caused by formal transfers as the major income source stating that local labor market was sluggish and overseas ones were slow to recover being ranked as the second source of income reflected the changes in the labor market, while in 2010, the second-ranked sources of income (formal transfers and remittances) played a significant role in reflecting recovery in overseas markets. Local and overseas labor markets were the important crisis social impact transmission income channels that were affecting disposable income of households determining the coping strategies
57

In 2009, the unemployment rate increased by 2.4 p.p. (y/y) comprising 18.7 p.p. (Source: NSS, various publications).

75

they would adopt, stressing the role of SP&L policies the government needs to adopt during the crisis. One of the warning signs of the negative social impact of the crisis are the growing number of loan-holders, becoming vulnerable to future shocks and causing possible credit crisis, thus stressing the urgency of active economic policy and labor market measures as well. To avoid possible credit crisis and increase the income of 700,000 employees who receive less than 100,000 AMD viable mechanisms are required to lower interest rates and subsidize borrowers. These mechanisms will prevent negative social developments that will affect HHs. The stress should be on the structure of credit portfolio as well. Overall, building a competitive nation would allow Armenia to ensure higher wages for the employed and increase in welfare of the society resulting in higher human development accumulation.

76

References
1. Bleaney, Michael (2005). The Aftermath of a Currency Collapse: How Different are Emerging Markets? The World Economy. Volume 28. Issue 1. pp. 79-89. 2. Canagarajah, Sudharshan (2010). The Economic Crisis in the Low Income CIS: Fiscal Consequences and Policy Responses, Presentation prepared for International Workshop on the Economic and Social Impact of Migration. Remittances, and Diaspora, Yerevan, Armenia, June 24-25. http://siteresources.worldbank.org /INTECA/Resources/Sudharshan_Eng.pdf (last accessed: April 19. 2012) 3. Gupta, P., Mishra. D., and Sahay, R. (2003). Output Response to Currency Crises, IMF Working Paper no. 03/230, International Monetary Fund, Washington, DC. http://www.imf.org/external/pubs/ft/wp/2003/ wp03230.pdf (last accessed: April 19. 2012) 4. Marzo, Federica and Mori, Hideki (2012) Crisis Response in Social Protection, Background Paper for the World Bank 20122022 Social Protection and Labor Strategy, the World Bank Discussion Paper No1205, Washington, DC: The World Bank. http://siteresources.worldbank.org/SOCIALPROTECTION /Resources/ SP-Discussion-papers/4305781331508552354/1205.pdf (last accessed: April 19. 2012) 5. Pernia, Ernesto and Knowles, James C. (1998). Assessing the Social Impact of the Financial Crisis in Asia, ADB Economics and Development Resource Center EDRC Briefing Note Number 6, Manila Philippines: Asian Development Bank. http://www.adb.org/sites/default/files/pub/1998/BN006. pdf (last accessed: April 19. 2012)

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6. Porter, Michael and Ketels, Christian. (2003). UK Competitiveness: Moving to the Next Stage, DTI Economic Paper No 3, London, UK: UK Department of Trade and Industry. http://www.berr.gov.uk/files/file14771.pdf (last accessed: October 21, 2010) 7. Public Forum Armenia (2008). Implications of the Worlds Financial Crisis for Armenias Economy, http://www.pfarmenia.org/fileadmin/pfa_uploads/CRISIS_REPORT-FINAL.pdf (last accessed: April 19. 2012) 8. Reinhart, Carmen and Rogoff, Kenneth (2009). This Time is Different: Eight Centuries of Financial Folly. Princeton University Press. Princeton. New Jersey: United States. 496 p. 9. The International Bank for Reconstruction and Development/ The World Bank. (2011). The Jobs Crisis: Household and Government Responses to the Great Recession in Eastern Europe and Central Asia. Washington. DC: The World Bank. http://siteresources.worldbank.org/INTECA/Resources/25 7896-1293468285763/The_Jobs_Crisis_Client_Delivery.pdf (last accessed: April 19. 2012) 10. The International Bank for Reconstruction and Development/ The World Bank. (2010) ARMENIA: The 2008-09 Global Economic Crisis, Policy, Responses, and Household Coping Strategies. Report No. 55011-AM, Human Development Sector Unit, Europe and Central Asia Region, Washington, DC: The World Bank. http://siteresources.worldbank.org/ARMENIAEXTN/Reso urces/Global_Economic_Crisis_ Policy_ 2008_ 09.pdf (last accessed: April 19. 2012) 11. UNDP (2010). Poverty and Social Impact Analysis of the Global Economic Crisis: Synthesis Report of 18 Country Studies, New York, USA: United Nations Development Program. http:// www.undp.org/content /dam/aplaws/publication/en/publications/povertyreduction/poverty-website/psia/crisis-project/synthesis-re

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port/1958-UNDP-PSIA-Report-LR.pdf (last accessed: April 19. 2011) 12. VAM Food Security Analysis of the World Food Programme (2009). Rapid Assessment of the Impact of the Global Financial Crisis in Armenia. Rome: WFP. http://home.wfp.org/stellent/groups/public/documents/ ena/wfp205566.pdf (last accessed: April 19. 2012) 13. VAM Food Security Analysis of the World Food Programme (2010), Effects of the Financial Crisis on Vulnerable Households: Follow-Up Study Armenia. Rome: WFP. http://documents.wfp.org/stellent/groups/public/docume nts/ena/wfp220215.pdf (last accessed: February 6, 2012) 14. .., .., .., . . 2004, 576 .

79

List of Abbreviations
AMD CAGR CBA CPI CRRC DI GDP GFC GFCF HH ICT ISP NSS NUPI OLS p.p. SP&L UCO USD VAM WB Y/Y Armenian Dram Compound Annual Growth Rate The Central Bank of Armenia Consumer Price Index The Caucasus Research Resource Centers Data Initiative Gross Domestic Product Global Financial Crisis Gross Fixed Capital Formation Household Information and Communications Technology Internet Service Provider National Statistical Service of the Republic of Armenia Norwegian Institute of International Affairs Ordinary Least Squares Percentage Point Social Protection and Labor Universal Credit Organization United States Dollar Vulnerability Assessment and Mapping The World Bank Year over year

80

APPENDICES

81

Appendix A Table A1. GDP Production growth rates, 2001:1-2003:4 (NACE 1.1 Revision of Economic Activity Classification)
Gross Domestic Product Gross value added Agriculture, hunting and forestry Fishing Mining and quarrying Manufacturing Electricity, gas and water supply Construction Wholesale and retail trade; repair of motor vehicles, motorcycles and personal and household goods Hotels and restaurants Transport and communication Financial intermediation Real estate, renting and business activities Public administration Education Health and social work Other community, social and personal service activities 2001:1 2001:2 2001:3 2001:4 2002:1 2002:2 2002:3 2002:4 2003:1 2003:2 2003:3 2003:4 111.5 105.7 115.2 106.2 108.4 109.7 113.2 117.9 110.9 116.3 114.3 114.0 107.8 104.6 115.5 106.2 109.5 108.1 112.0 119.1 110.6 117.6 114.9 114.6 100.5 98.4 123.3 112.9 105.3 98.2 104.6 106.2 106.7 100.5 99.3 111.2 222.8 203.1 223.4 216.4 51.1 80.6 81.3 87.1 127.5 112.0 145.0 138.0 141.5 132.5 105.2 110.1 106.5 98.2 114.4 159.3 120.9 99.6 107.0 122.4 121.3 99.5 109.5 111.3 126.4 118.3 123.4 104.9 108.7 132.4 120.1 107.9 93.1 87.3 96.7 94.7 96.0 98.3 85.6 126.7 109.1 100.9 105.1 100.8 103.8 117.2 122.0 87.5 111.8 130.6 141.0 152.1 133.2 149.4 157.8 135.7 114.2 113.8 117.0 121.0 108.8 123.0 125.3 123.1 110.7 113.7 116.5 110.1 138.3 151.0 175.0 104.5 104.0 114.0 104.0 103.6 102.4 118.1 119.9 113.8 107.0 120.0 120.7 115.0 98.9 94.2 95.5 102.8 111.9 114.8 106.7 104.4 78.7 100.4 132.6 123.7 101.0 122.0 75.3 84.5 141.1 105.3 89.4 102.9 114.0 98.8 102.2 107.1 97.6 111.1 104.7 108.7 109.2 98.5 116.0 104.0

A B C D E F

82

G H I J K L M N O

109.2 140.2 122.4 66.5 115.2 85.8 106.2 132.4 99.5 141.0 102.4 124.8 101.5 87.1 117.7 116.4 114.4 123.3 102.2 103.9 103.1 98.6 127.4 109.4 111.2 123.4 109.6 133.2 106.1 114.9 89.6 220.9 102.9 100.0 104.1 133.4 81.6 91.7 58.9 73.6 115.0 80.5 118.2 118.2 139.6 120.8 117.1 120.6

Source: NSS online database (last accessed: April 8, 2012).

82

Table A2. GDP Production growth rates, 2004:1-2006:4 (NACE 1.1 Revision of Economic Activity Classification)
Gross Domestic Product Gross value added Agriculture, hunting and forestry Fishing Mining and quarrying Manufacturing Electricity, gas and water supply Construction Wholesale and retail trade; repair of motor vehicles, motorcycles and personal and household goods Hotels and restaurants Transport and communication Financial intermediation Real estate, renting and business activities Public administration Education Health and social work Other community, social and personal service activities 2004:1 2004:2 2004:3 2004:4 2005:1 2005:2 2005:3 2005:4 2006:1 2006:2 2006:3 2006:4 108.0 110.4 112.7 109.5 108.4 114.3 112.7 117.1 113.1 119.1 112.2 110.4 109.3 111.6 113.3 110.0 106.9 116.0 113.3 116.5 113.6 118.5 111.8 110.4 106.2 110.1 121.3 110.1 101.6 114.6 108.6 116.0 102.4 110.5 95.3 102.7 166.4 184.6 135.1 208.4 78.1 82.2 125.9 66.7 88.4 92.1 126.2 146.8 107.8 111.9 118.2 164.2 104.1 87.3 98.6 75.7 86.8 92.0 121.0 105.9 103.9 102.2 88.3 97.5 110.1 120.0 108.8 100.0 107.9 95.1 98.3 99.4 100.6 111.7 107.7 110.2 99.1 101.3 100.2 123.5 93.0 97.1 86.0 84.3 122.5 112.8 119.6 111.8 110.6 125.1 129.3 131.7 125.9 138.2 147.4 130.0 109.5 110.6 108.4 110.5 105.6 109.7 114.8 118.3 127.1 139.1 125.0 113.6 114.8 116.7 133.3 112.3 98.4 109.5 117.6 160.8 113.5 115.9 117.0 128.1 107.7 121.1 163.5 106.1 138.7 121.8 93.6 99.7 103.0 123.3 88.3 109.0 125.1 117.3 89.8 114.2 122.4 116.2 106.6 103.2 119.4 108.0 115.9 81.7 115.5 113.6 110.7 114.3 119.4 116.9 139.3 102.0 126.0 118.2 122.6 99.1 118.2 108.5 132.8 97.0 136.4 121.8 164.3 107.2 118.6 102.4 133.4 119.4 112.7 156.1 136.0 122.7 106.2 141.8 76.2 113.2 122.0 167.1 109.3 106.3 117.0 95.8 94.7 118.7 124.8 130.1 110.2 105.6 108.9 105.6 89.1 120.4 130.2 115.1 109.5 106.3 99.0

A B C D E F

83

G H I J K L M N O

130.4 136.9

104.1 110.4 133.6 108.7 101.9

Source: NSS online database (last accessed: April 8, 2012).

83

Table A3. GDP Production growth rates, 2007:1-2009:2 (NACE 1.1 Revision of Economic Activity Classification)
Gross Domestic Product Gross value added Agriculture, hunting and forestry Fishing Mining and quarrying Manufacturing Electricity, gas and water supply Construction Wholesale and retail trade; repair of motor vehicles, motorcycles and personal and household goods Hotels and restaurants Transport and communication Financial intermediation Real estate, renting and business activities Public administration Education Health and social work Other community, social and personal service activities 2007:1 2007:2 2007:3 2007:4 2008:1 2008:2 2008:3 2008:4 2009:1 2009:2 112.1 110.1 115.7 115.0 113.0 109.6 115.4 94.1 93.7 81.4 109.9 108.4 114.1 112.2 110.0 107.4 115.6 92.9 95.9 82.9 102.1 96.9 114.0 112.9 98.1 115.3 113.3 85.1 102.7 108.2 196.2 127.8 69.4 159.5 314.6 185.7 214.1 159.2 147.9 105.0 107.0 97.3 106.0 104.7 87.8 110.6 85.6 127.7 95.6 99.0 102.1 99.4 102.5 102.4 103.9 96.6 98.1 105.3 93.7 88.2 106.8 104.4 101.8 109.0 109.8 96.4 117.2 97.2 88.7 94.2 118.0 120.4 117.7 117.1 117.8 112.5 133.1 85.5 82.1 51.3 103.9 148.4 128.4 131.7 131.0 107.4 106.6 93.7 118.0 108.0 156.8 116.6 128.1 110.7 120.6 101.4 100.5 115.7 111.7 183.6 127.4 133.0 125.9 97.5 99.4 118.5 117.1 109.8 137.4 117.5 169.8 105.6 96.8 105.6 106.7 100.1 101.5 99.4 130.3 192.9 99.3 95.5 85.1 125.0 120.6 101.0 128.8 129.5 129.8 110.2 98.9 91.2 84.2 67.8 115.2 107.9 105.2 141.7 92.4 83.8 99.3 108.3 73.8 110.4 101.9 86.2 95.1 94.8 94.3 102.2 73.2 120.9 103.2 127.1 93.9 73.2 116.9 84.9 114.6 92.0 135.9 89.2 127.5 90.0 109.5 102.8 84.5 98.4 94.3 121.6

A B C D E F

84

G H I J K L M N O

Source: NSS online database (last accessed: April 8, 2012).

84

Table A4. GDP Production growth rates, 2009:3-2011:4 (NACE 1.1 Revision of Economic Activity Classification)
Gross Domestic Product Gross value added Agriculture, hunting and forestry Fishing Mining and quarrying Manufacturing Electricity, gas and water supply Construction Wholesale and retail trade; repair of motor vehicles, motorcycles and personal and household goods Hotels and restaurants Transport and communication Financial intermediation Real estate, renting and business activities Public administration Education Health and social work Other community, social and personal service activities 2009:3 2009:4 2010:1 2010:2 2010:3 2010:4 2011:1 2011:2 2011:3 2011:4 80.3 92.2 103.4 108.2 97.1 102.4 101.4 103.1 106.9 105.0 80.5 93.7 102.6 105.2 95.9 103.3 101.5 103.5 107.0 104.5 107.2 103.5 95.1 79.4 75.7 97.3 98.5 103.9 124.3 107.0 82.4 90.4 101.1 78.3 78.4 104.0 102.1 112.1 129.3 175.2 106.8 136.4 137.3 105.8 124.1 115.9 105.3 124.0 154.0 118.2 90.4 99.0 106.8 111.3 114.1 119.0 109.1 116.8 114.0 113.3 70.3 93.4 92.8 104.4 101.8 92.4 104.6 134.5 111.0 117.3 49.0 74.6 116.8 115.5 92.7 102.7 96.4 94.7 76.1 91.1 92.0 115.2 93.6 68.3 89.3 94.8 93.9 95.1 88.2 98.0 128.5 83.1 146.6 95.6 110.6 105.8 100.6 103.1 105.8 127.7 80.0 123.2 106.8 105.0 105.8 90.6 94.6 108.6 123.2 124.6 104.5 105.4 102.4 89.0 96.5 93.5 102.2 110.7 108.3 132.5 130.5 105.2 100.5 100.1 99.1 104.1 133.0 106.8 73.0 97.2 111.3 101.7 114.1 111.3 103.7 117.4 103.7 110.3 96.6 110.0 103.5 111.7 126.4 103.0 108.3 100.1 128.7 105.9 109.6 103.8 109.5 104.7 104.9 103.2 90.8 125.2 104.5 97.4 120.8 105.1 105.9 104.3 118.0 108.3 126.1 116.3 100.8 106.0 104.9 109.7

A B C D E F

85

G H I J K L M N O

Source: NSS online database (last accessed: April 8, 2012).

85

Appendix B Table B1. GDP Expenditure components growth rates, 2001:1-2003:2

2001:1 2001:2 2001:3 2001:4 2002:1 2002:2 2002:3 2002:4 2003:1 2003:2 Gross Domestic Product Household final consumption expenditure Gross fixed capital formation Net exports of goods and services 111.5 102.6 96.2 73.7 105.7 101.1 141.1 95.1 84.5 115.2 111.2 115.8 114.0 104.4 106.2 112.8 73.2 106.3 93.3 108.4 104.0 107.9 115.6 89.3 109.7 107.8 86.5 137.1 83.5 113.2 107.1 96.6 128.8 103.5 117.9 114.3 121.3 139.5 110.4 110.9 107.5 123.9 116.2 133.8 116.3 107.4 128.6 143.5 162.4

Government final consumption expenditure 117.1

Source: NSS online database (last accessed: April 8, 2012).

86

Table B2. GDP Expenditure components growth rates, 2003:3-2005:4

2003:3 2003:4 2004:1 2004:2 2004:3 2004:4 2005:1 2005:2 2005:3 2005:4 Gross Domestic Product Household final consumption expenditure Gross fixed capital formation Net exports of goods and services 114.3 109.5 134.0 115.3 114.0 104.9 101.9 115.5 97.2 108.0 108.3 110.4 115.6 111.0 110.4 108.3 106.5 115.9 86.8 112.7 110.4 112.9 121.1 99.2 109.5 108.3 113.5 119.5 87.7 108.4 114.0 119.2 119.6 109.3 114.3 123.1 123.2 123.1 103.5 112.7 103.3 115.2 121.6 88.1 117.1 102.4 119.0 143.0 151.4

Government final consumption expenditure 109.8

Source: NSS online database (last accessed: April 8, 2012).

86

Table B3. GDP Expenditure components growth rates, 2006:1-2008:4

2006:1 2006:2 2006:3 2006:4 2007:1 2007:2 2007:3 2007:4 2008:1 2008:2 2008:3 2008:4

Domestic product Household final consumption expenditure Government final consumption expenditure Gross fixed capital formation Net exports of goods and services

113.1 119.1 112.2 110.4 112.1 110.1 115.7 115.0 113.0 109.6 115.4 119.4 110.0 105.4 122.7 108.8 96.4 108.9 107.1 104.0 104.0 89.3

94.1 98.5 85.6

110.8 111.0 106.0 106.9 113.6 113.8 112.5 113.3 109.0 104.4 107.1 102.1 131.9 131.4 131.9 137.1 115.9 114.5 119.3 119.4 134.8 113.1 137.2

128.3 126.8 136.4 116.0 126.1 115.9 134.0 167.5 118.3 135.6 139.3 117.2

Source: NSS online database (last accessed: April 8, 2012).

87

Table B4. GDP Expenditure components growth rates, 2009:1-2011:4

2009:1 2009:2 2009:3 2009:4 2010:1 2010:2 2010:3 2010:4 2011:1 2011:2 2011:3 2011:4

Domestic product Household final consumption expenditure Government final consumption expenditure Gross fixed capital formation Net exports of goods and services

93.7 96.4 101.3 74.9 76.9

81.4 95.2 99.5 61.0 65.6

80.3 92.2 96.6 64.5 67.8

92.2 98.7 98.6 97.8 89.1

103.4 108.2 103.4 107.4 109.3 111.0

97.1 99.4 85.7

102.4 101.4 103.1 106.9 105.0 99.1 98.7 75.1 99.4 91.1 79.4 105.9 100.2 104.1 98.5 86.8 85.2 109.4 110.0 80.1 77.7 96.2 88.5 110.0 102.9

105.3 103.5 107.6

125.7 130.9 110.1

Source: NSS online database (last accessed: April 8, 2012).

87

Appendix C Table C1. Annual GDP growth rates and composition, 2001-2005 (NACE 1.1 Revision of Economic Activity Classification)
2001
growth rate

2002
113.2 114.3 113.1 86.9 103.9 77.4 119.5 117.2 101.7 141.7 121.1 106.4 98.3 91.8 106.3 106.4 109.9 141.4 108.4 100 9.7 90.3 -1.1 23.5 0.0 1.1 15.1 6.3 12.6 11.1 0.4 6.1 1.5 3.9 2.6 3.2 2.3 1.5

2003
114.0 107.9 114.7 117.3 104.2 132.4 113.1 117.0 104.0 145.4 112.7 114.5 108.3 106.9 106.5 118.3 110.0 112.8 121.4 100 9.1 90.9 -1.1 21.5 0.0 1.4 15.3 5.8 15.7 11.4 0.4 5.9 1.4 3.6 2.7 3.0 2.3 1.6

2004
110.5 102.4 111.3 126.8 114.5 172.1 127.6 97.5 107.2 115.4 109.8 109.7 119.5 128.6 110.3 126.5 117.8 100.0 115.3 100 8.4 91.6 -1.3 22.6 0.1 3.2 13.6 5.3 15.5 11.6 0.4 6.0 1.6 3.5 2.8 3.0 2.2 1.5

2005
113.9 112.4 114.0 106.5 111.3 87.1 90.7 108.8 106.5 127.9 113.4 125.1 118.0 124.1 106.0 118.9 108.9 131.8 98.2 100 8.6 91.4 -1.2 19.0 0.0 3.2 13.5 5.0 19.6 11.4 0.4 6.0 1.8 3.2 2.8 2.8 2.5 1.3

share growth share growth share growth share growth share % rate % rate % rate % rate %

A B C D E F G H I J K L M N O

Gross domestic product Taxes on products (minus subsidies) Gross value added Financial Intermediate Services Indirectly Measured Agriculture, hunting and forestry Fishing Mining and quarrying Manufacturing Electricity, gas and water supply Construction Wholesale and retail trade; repair of motor vehicles, motorcycles and personal and household goods Hotels and restaurants Transport and communication Financial intermediation Real estate, renting and business activities Public administration Education Health and social work Other community, social and personal service activities

109.6 116.9 108.8 107.1 112.1 216.2 119.9 109.8 93.0 105.4 117.3 142.3 115.8 111.6 105.2 104.3 105.4 120.5 74.6

100 9.7 90.3 -1.4 25.6 0.0 0.8 15.7 6.7 9.7 10.6 0.4 7.0 1.9 4.3 3.0 3.3 1.3 1.5

88

Source: NSS online database (last accessed: April 8, 2012).

88

Table C2. Annual GDP growth rates and composition, 2006-2011 (NACE 1.1 Revision of Economic Activity Classification)
2006
Gross domestic product Taxes on products (minus subsidies) Gross value added Financial Intermediate Services Indirectly Measured Agriculture, hunting and forestry Fishing Mining and quarrying Manufacturing Electricity, gas and water supply Construction Wholesale and retail trade; repair of motor vehicles, motorcycles and personal and household goods Hotels and restaurants Transport and communication Financial intermediation Real estate, renting and business activities Public administration Education Health and social work Other community, social and personal service activities 113.2 114.9 113.0 101.7 100.5 119.5 101.2 99.5 89.6 137.7 112.4 91.9 117.0 131.5 132.9 111.7 106.1 112.3 112.5 100 8.5 91.5 -1.1 18.7 0.1 2.6 10.8 3.8 23.7 11.4 0.3 6.3 2.1 3.7 2.6 2.8 2.5 1.3

2007
113.7 135.9 111.7 153.4 110.3 127.5 103.6 101.6 105.8 118.2 108.8 158.1 122.0 142.6 116.1 104.6 102.9 105.7 112.0 100 10.0 90.0 -1.4 18.2 0.0 2.3 9.4 3.3 24.5 10.9 0.4 6.9 2.5 3.8 2.5 2.8 2.5 1.3

2008
106.9 117.1 105.8 109.1 103.0 212.9 103.8 100.9 104.6 111.3 108.0 109.6 108.4 132.6 98.6 93.4 94.7 93.0 90.7 100 11.4 88.6 -1.5 16.1 0.2 1.6 8.8 2.9 25.3 11.6 0.4 6.8 3.4 3.7 2.7 2.7 2.7 1.2

2009
85.9 77.5 86.9 89.8 105.9 109.7 106.3 92.9 86.7 58.4 95.2 123.5 90.1 98.4 99.9 94.1 102.2 96.0 108.5 100 10.6 89.4 -1.6 16.7 0.2 1.7 8.7 3.1 18.6 12.7 0.6 7.2 3.9 4.9 3.8 3.6 3.5 1.8

2010
102.1 109.2 101.3 103.5 84.2 92.8 119.1 113.6 96.9 103.0 104.8 122.3 104.9 101.7 108.7 106.3 98.7 101.9 100.5 100 11.1 88.9 -1.5 17.2 0.2 2.5 9.5 2.8 17.1 13.0 0.7 6.8 3.6 4.7 3.8 3.3 3.3 1.8

2011
104.6 104.3 104.6 173.6 113.5 125.9 125.3 113.5 115.9 87.7 104.1 110.8 99.8 122.5 105.8 104.2 108.7 107.1 110.8 100 10.8 89.2 -2.5 20.4 0.3 2.9 9.7 3.4 12.7 13.5 0.8 6.3 4.0 5.0 3.8 3.2 3.9 1.9

growth share growth share growth share growth share growth share growth share rate % rate % rate % rate % rate % rate %

A B C D E F G H I J K L M N O

89

Source: NSS online database (last accessed: April 8, 2012).

89

Appendix D Table D1. Real Productivity,* 2006-2010 (thousands AMD)

Industry Mining and quarrying Construction Financial intermediation Real estate, renting and business activities Manufacturing Electricity, gas and water supply Transport and communication Wholesale and retail trade; repair of motor vehicles, motorcycles and personal and household goods Public administration Hotels and restaurants Agriculture, hunting and forestry 2006 2007 2008 2009 2010 9.517 8.713 9.370 11.463 12.947 20.419 23.044 13.205 9.289 8.530 7.822 8.270 9.209 8.919 8.351 4.107 2.737 4.443 3.225 2.709 1.977 1.046 853 4.224 2.965 4.720 4.018 2.941 1.904 1.516 937 4.102 3.269 4.574 4.020 2.978 1.698 1.125 995 4.236 3.368 4.065 3.797 3.104 1.677 1.219 988 4.406 4.203 3.720 3.625 3.163 1.536 1.474 874

Source: NSS various publications; authors own calculations *Industry real value-added divided by number of the employees of the respective industry.

90

Appendix E Table E1. GDP Expenditure components growth rates, 2001-2005

Real growth rates Gross Domestic Product Total final consumption expenditure Household final consumption expenditure Final consumption expenditure of non-profit institutions serving households Government final consumption expenditure Individual consumption expenditure Collective consumption expenditure Gross capital formation Gross fixed capital formation Changes in inventories Net exports of goods and services Exports Imports 2001 109.6 107.1 107.6 69.2 104.3 105.2 103.8 116.3 105.3 88.7 127.0 106.4 2002 113.2 108.2 108.9 2003 114.0 107.6 107.2 2004 110.5 109.1 108.9 96.8 111.0 107.4 113.2 117.5 119.0 94.9 98.3 97.1 2005 113.9 109.9 108.8 93.5 119.0 120.1 118.4 126.9 129.1 111.2 115.9 114.3

121.2 48.2 102.2 105.1 100.5 122.5 133.1 98.2 135.8 118.9 114.1 114.7 113.8 130.7 127.5 122.2 129.1 126.5

Source: NSS online database (last accessed: April 8, 2012).

Table E2. GDP Expenditure components growth rates, 2006-2011

Real growth rates Gross Domestic Product Total final consumption expenditure Household final consumption expenditure Final consumption expenditure of non-profit institutions serving households Government final consumption expenditure Individual consumption expenditure Collective consumption expenditure Gross capital formation Gross fixed capital formation Changes in inventories Net exports of goods and services Exports Imports 2006 113.2 109.0 108.3 2007 113.7 112.3 113.2 2008 106.9 104.5 105.4 2009 85.9 96.0 95.5 2010 102.2 103.9 103.8 2011 104.7 103.4 102.4

82.5 126.2 115.2 127.7 121.1 210.2 114.0 104.8 120.0 132.2 133.7 125.9 92.7 103.8 105.2 111.1 101.6 119.7 118.2 137.3 96.5 113.0 98.1 93.4 101.6 112.6 111.9 126.8 86.9 107.3 98.8 101.2 97.3 69.1 74.6 75.7 89.6 80.8 103.9 109.3 100.3 100.5 97.1 105.1 126.5 112.8 107.7 94.6 116.5 95.3 88.8 82.8 114.8 97.5

Source: NSS online database (last accessed: April 8, 2012).

91

Table E3. GDP structure by expenditure components, 2001-2005

Real growth rates Gross Domestic Product Total final consumption expenditure Household final consumption expenditure Final consumption expenditure of nonprofit institutions serving households Government final consumption expenditure Individual consumption expenditure Collective consumption expenditure Gross capital formation Gross fixed capital formation Changes in inventories Net exports of goods and services Exports Imports Statistical Discrepancy 2001 2002 2003 2004 2005 100.0 100.0 100.0 100.0 100.0 104.8 99.1 93.5 92.6 86.0 93.3 0.2 11.3 4.1 7.2 19.8 17.7 2.1 -20.7 25.5 46.1 -3.9 88.6 0.5 10.0 3.8 6.2 21.7 21.1 0.6 -17.2 29.4 46.6 -3.5 83.1 0.2 10.2 3.9 6.3 24.3 23.0 1.3 -17.9 32.2 50.0 0.1 82.3 0.2 10.2 3.9 6.2 24.9 23.9 1.0 -15.6 29.7 45.3 -2.0 75.4 0.1 10.6 4.1 6.4 30.5 29.8 0.7 -14.4 28.8 43.2 -2.1

Source: NSS online database (last accessed: April 8, 2012).

Table E4. GDP structure by expenditure components, 2006-2011

Real growth rates 2006 Gross Domestic Product 100.0 Total final consumption expenditure 82.3 Household final consumption expenditure 72.2 Final consumption expenditure of non0.1 profit institutions serving households Government final consumption 10.1 expenditure Individual consumption expenditure 3.8 Collective consumption expenditure 6.3 Gross capital formation 35.9 Gross fixed capital formation 35.5 Changes in inventories 0.4 Net exports of goods and services -15.9 Exports 23.4 Imports 39.3 Statistical Discrepancy -2.4 2007 100.0 81.8 71.5 0.1 2008 100.0 81.8 71.4 0.1 2009 2010 2011 100.0 100.0 100.0 93.7 95.1 96.6 80.2 81.8 82.5 0.2 13.3 0.2 13.1 0.5 13.7

10.2 10.2 4.3 5.9 37.8 36.9 0.8 -20.0 19.2 39.2 0.4 3.9 6.4 40.9 39.8 1.1 -25.6 15.0 40.7 2.9

5.3 5.2 4.8 8.0 7.8 8.9 34.7 32.9 27.9 36.4 33.4 26.3 -1.7 -0.6 1.6 -27.5 -24.5 -23.6 15.5 20.8 23.7 43.0 45.3 47.3 -0.8 -3.5 -1.0

Source: NSS online database (last accessed: April 8, 2012).

92

Appendix F

CRRC Caucasus Barometer Datasets (2008, 2009, 2010)

Table F1. Ranks of Sources of Income, 2008-2009
Sources of Income 2008 (N=580, 538, 562, 1770) 2009 (N=437, 584, 759, 1780) Income Ranks Income Ranks 1st 2nd 3rd 4th 5th Total 1st 2nd 3rd 4th 5th Total 30 38 5 73 18 13 1 1 33 16 20 2 38 26 14 5 1 46 10 15 3 28 51 13 5 1 70 56 73 10 139 95 40 11 3 149 47 50 12 1 110 37 23 3 63 57 36 7 1 101 69 51 5 125 44 34 10 1 89 65 44 7 1 117 148 120 29 3 300 171 118 15 1 305 3 1 1 5 1 2 3 17 17 1 35 17 3 2 22 208 98 7 3 316 318 163 19 1 501 228 116 9 3 356 336 168 21 1 526 412 36 5 453 262 26 288 249 47 1 297 270 55 4 1 330 160 48 7 1 216 131 70 7 208 821 131 13 1 966 663 151 11 1 826 83 175 25 2 285 99 109 3 211 169 110 14 1 294 185 124 15 1 325 204 188 34 3 429 178 167 36 2 383 456 473 73 6 1008 462 400 54 3 919 4 1 5 4 1 5 1 3 3 7 1 1 1 1 2 3 3 2 8 4 14 8 1 9 5 11 5 1 1 22 16 16 1 33 29 34 3 66 16 18 2 36 25 27 1 1 54 13 19 4 36 59 72 9 2 1 142 45 53 7 105

Stratums Yerevan Urban Towns INCRAAB Rural Comm. Sample Yerevan Urban Towns NCRARM Rural Comm. Sample Yerevan Urban Towns INCRAAG Rural Comm. Sample Yerevan Urban Towns INCRASL Rural Comm. Sample Yerevan Urban Towns INCRAGO Rural Comm. Sample Yerevan Urban Towns INCRARE Rural Comm. Sample Yerevan Urban Towns INCRAOT Rural Comm. Sample

93

Table F2. Ranks of Sources of Income, 2010

Sources of Income INCRAAB 2010 (N=537, 497, 598, 1732) Income Ranks 2nd 3rd 4th 5th 30 5 17 3 15 3 1 62 11 1 32 12 17 3 29 6 2 78 21 2 6 1 24 2 95 17 1 125 20 1 40 5 37 4 63 6 140 15 113 7 119 15 155 34 2 387 56 2 3 2 2 5 15 9 10 34 2 4 3 2 9

NCRARM

INCRAAG

INCRASL

INCRAGO

INCRARE

INCRAOT

Stratums Yerevan Urban Towns Rural Comm. Sample Yerevan Urban Towns Rural Comm. Sample Yerevan Urban Towns Rural Comm. Sample Yerevan Urban Towns Rural Comm. Sample Yerevan Urban Towns Rural Comm. Sample Yerevan Urban Towns Rural Comm. Sample Yerevan Urban Towns Rural Comm. Sample

1st 24 48 43 115 56 48 70 174 4 10 205 219 330 240 178 748 95 133 180 408 4 1 5 24 8 21 53

Total 59 68 62 189 100 68 107 275 11 36 318 365 375 281 247 903 215 267 371 853 9 2 1 12 43 20 33 96

94

Table F3. Changes in Income over last 12 months, 2008-2010

Changes in Income Decreased Yerevan Nearly remained the same (N=580. 437. 537) Increased Decreased Urban Towns Nearly remained the same (N=538. 584. 497.) Increased Decreased Rural Communities Nearly remained the same (N=562. 759. 598) Increased Decreased Sample Nearly remained the same (N=1770. 1780. 1732) Increased Stratum 2008 132 352 96 101 334 103 144 340 168 377 1026 367 2009 134 248 55 212 271 101 367 330 62 713 849 218 2010 163 293 81 169 239 89 304 284 110 636 816 280

Authors dataset
Table F4. Ranks of Sources of Income in Yerevan, 2008-2011 (N=377)
Sources of Income INCRAAB Ranks of Sources of Income 2008 2009 2010 2011 1st 9 9 9 9 2nd 3 3 4 4 3 2 2 3 3rd 1st 19 19 19 19 24 27 28 28 2nd 3rd 5 5 5 4 1st 1 1 1 1 2nd 3rd 317 317 316 314 1st 18 19 17 17 2nd 2 1 1 1 3rd 30 31 32 33 1st 141 143 150 155 2nd 12 11 14 14 3rd 1 1 1 1 1st 2nd 3rd 1 1 1st 2nd 3rd

NCRARM

INCRAAG

INCRASL

INCRAGO

INCRARE

INCRAOT

95

Table F5. Changes in Income over last 12 months, 2008-2011 (N=377)

Changes in Income Decreased Nearly remained the same Increased 2008 80 237 60 2009 81 232 64 2010 93 209 75 2011 97 206 74

Table F6. Changes in Income Source, 2008-2011 (N=377)

Income Sources Changes in income sources reduced INCRAAB remained the same increased NCRARM reduced remained the same increased reduced INCRASL remained the same increased 2008 3 11 1 14 30 2 67 208 59 2009 3 10 1 14 30 2 67 199 67 18 27 4 81 184 68 18 27 3 83 175 72 2010 4 10 2011 5 10

Table F7. Share of salaries in HH income, 2008-2011 (N=310, 308, 306, 306)
Share of salaries in total monthly HH income =<10 11 - 20 21 - 30 31 - 40 41 - 50 51 - 60 61 - 70 71 - 80 81 - 90 91 - 100 2008 3 5 9 14 7 16 36 36 184 2009 4 4 9 12 8 18 35 38 180 2010 5 3 8 13 6 21 35 40 175 2011 1 5 3 9 13 6 23 34 41 171

96

Table F8. Annual Employment of Yerevan HHs by Types of Economic Activity (NACE Rev. 1) in 2008-2011, (N=332, 329, 329, 329)
2008 2009 2010 2011 Agriculture, hunting and forestry 2 2 2 2 Mining and quarrying 2 2 2 2 Manufacturing 61 59 59 58 Electricity, gas and water supply 12 12 12 11 Construction 57 56 57 57 Trade, repair of motor vehicles, motorcycles 103 102 103 103 and personal and household goods Hotels and restaurants 25 27 26 29 Transportation and communication 55 54 53 53 Financial intermediation 22 23 23 22 Real estate, renting and business activities 12 13 13 14 Public administration 59 59 59 59 Education 73 74 74 75 Health and social work 43 43 44 43 Community, social and personal service activities 31 32 33 34 International organizations and etc. 4 4 3 3 N/A 13 13 12 12 Total 574 575 575 577

Appendix G Table G1. Real monthly average wages by Marzes and Yerevan city, 2007-2011 (AMD)
Total in RA Yerevan Aragatsotn Ararat Armavir Gegharkunik Lory Kotayk Shirak Syunik Vayots Dzor Tavush 2007 69,113 77,492 51,418 54,537 61,795 53,810 53,071 64,189 51,767 86,605 51,345 48,780 2008 74,706 84,664 55,550 56,531 65,850 57,535 57,431 65,479 55,610 88,796 58,024 52,756 2009 79,355 88,729 62,774 63,110 72,007 65,617 62,526 70,747 61,450 84,674 59,936 58,345 2010 78,420 87,190 55,865 62,466 72,524 64,325 60,524 72,419 59,186 92,366 57,793 56,863 2011 76,661 84,643 54,064 62,451 67,872 62,691 60,287 67,859 58,031 93,591 54,336 55,760

Source: NSS, various publications, authors own calculations.

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Table G2. Average Annual Employment by Types of Economic Activity (NACE Rev. 1) in 2006-2010, (1000 persons)
Employment 2006 2007 2008 2009 2010 Total 1092.4 1101.5 1117.6 1089.4 1104.8 Agriculture, hunting and forestry 504.3 506.7 493.0 496.2 500.7 Fishing, fish-breeding 0.2 0.2 0.5 0.3 0.6 Mining and quarrying 7.6 8.6 8.3 7.3 7.6 Manufacturing 110.5 103.6 94.8 83.9 77.8 Electricity, gas and water supply 22.8 22.7 24.5 23.9 25.3 Construction 29.7 31.1 60.4 49.5 56.3 Trade, repair of motor vehicles, motorcycles 105.9 106.1 113.2 104.2 106.3 and personal and household goods Hotels and restaurants 7.7 8.4 12.4 12.5 14.3 Transportation and communication 48.6 47.6 51.6 53.8 54.1 Financial intermediation 6.6 8.9 10.6 11.0 11.7 Real estate, renting and business activities 23.3 26.3 26.7 26.6 27.0 Public administration 34.9 37.9 39.7 40.4 43.9 Education 100.8 101.3 100.9 100.6 103.2 Health and social work 48.8 50.2 44.5 45.7 43.0 Community, social and personal service 40.8 42.0 36.3 33.5 33.1 activities
Source: NSS, 2011.

Table G3. Per capita nominal monetary income of households, 2007-2011 (monthly average, AMD)*
Total in the republic 2007 2008 2009 2010 2011 22287 26866 28038 31553 34206 12234 2292 1622 38 3068 2374 659 14491 15328 2385 1534 1771 1667 35 25 4870 5615 2692 2669 622 1200 16738 2193 1181 30 5888 3927 1596 18135 2325 1731 141 6502 4127 1245

Total monetary income including from hired employment from self-employment from sale of agricultural products and livestock from property (renting, interests, share) from pensions and benefits from transfers other incomes

Source: NSS of Armenia, various publications. Note: weighted data; based on the number of de jure population.

98

Table G4. Per capita nominal monetary income of households in urban and rural settlements, 2007-2011 (monthly average, AMD)*
including urban settlements rural settlements 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011 24973 30174 31188 35682 38451 17418 20754 22068 24124 26384 15461 18068 19587 21194 23246 6383 7881 7255 8719 8717 3026 3084 1890 2746 2901 961 1092 859 1197 1264 202 51 201 49 115 33 98 45 77 216 4197 4670 4610 3131 4778 14 10 10 2 3

Total monetary income including from hired employment from self-employment from sale of agricultural products and livestock from property (renting, interests, share) from pensions and benefits from transfers other incomes

2954 5006 5581 5849 6650 3275 4615 5678 5957 6229 2607 3094 3048 4552 4422 1952 1950 1951 2802 3584 672 672 934 1198 939 636 536 1705 2316 1809

Source: NSS of Armenia, various publications. Note: weighted data; based on the number of de jure population.

Table G5. Per capita real* monetary income of households in Armenia, 2007-2011 (monthly average, AMD)**
Total in the republic 2007 2008 2009 2010 2011 20751 22962 23172 24105 24260

Total monetary income including from hired employment 11391 12385 12668 12787 12862 from self-employment 2134 2038 1268 1675 1649 from sale of agricultural products and livestock 1510 1514 1378 902 1228 from property (renting, interests, share) 35 30 21 23 100 from pensions and benefits 2857 4162 4640 4498 4611 from transfers 2210 2301 2206 3000 2927 other incomes 614 532 992 1219 883 Source: NSS of Armenia, various publications; and authors own calculations. Note: *CPI adjusted (2005=100); **weighted data; based on the number of de jure population.

99

Table G6. Per capita real* monetary income of households in urban and rural settlements, 2007-2011 (monthly average, AMD)**
including urban settlements rural settlements 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011 Total monetary income including from hired employment from selfemployment from sale of agricultural products and livestock from property (renting, interests, share) from pensions and benefits from transfers other incomes 23252 25790 25775 27259 27270 16218 17738 18238 18429 18712

14396 15443 16188 16191 16487 5943 6736 5996 6661 6182 2818 2636 1562 2098 2057 895 933 710 914 896

188

172

95

75

55

3908 3991 3810 2392 3389

47

42

27

34

153

13

2750 4279 4612 4468 4716 3049 3944 4693 4551 4418 2427 2644 2519 3477 3136 1818 1667 1612 2141 2542 626 574 772 915 666 592 458 1409 1769 1283

Source: NSS of Armenia, various publications; and authors own calculations. Note: *CPI adjusted (2005=100); **weighted data; based on the number of de jure population.

100

Appendix H Table H1. Estimation results for the generalized ordered choice probabilistic regression equations for each stratum, 2008
Model1(urban towns) STRATUM2 INCRAAB1 INCRAAG1 INCRAGO1 INCRAOT1 INCRARE2 INCRARM1 INCRARM2 INCRASL1 Akaike info criterion Included observations: NYRRLPRt* 0.03 (0.43) -1.68 (-2.44)*** -1.29 (-1.91)* -1.33 (-1.97)** -1.21 (-1.76)* -0.67 (-1.64)* -1.54 (-2.27)** -0.20 (-2.14)** -1.68 (-2.49)*** 1.924639 1772 Model2(rural communities) STRATUM3 INCRAAB1 INCRARM1 INCRARM2 INCRASL1 Akaike info criterion Included observations: NYRRLPRt* 0.03 (0.47) -0.46 (-2.78)*** -0.25 (-2.31)** -0.26 (-2.70)*** -0.38 (-5.76)*** 1.924639 1772

Note: value of z statistics in parentheses * significant at 10%; ** significant at 5%; *** significant at 1%.

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Table H2. Estimation results for the generalized ordered choice probabilistic regression equations for urban towns, 2009
Model1(urban towns) STRATUM2 INCRAAG1 INCRAAG2 INCRAGO1 INCRAOT1 INCRAOT2 INCRARE1 INCRARM1 INCRASL2 Akaike info criterion Included observations: NYRRLPRt* 0.07 (1.19) -0.62 (-7.52)*** -0.22 (-2.22)** -0.26 (-3.92)*** -0.43 (-2.42)** 0.38 (2.39)** -1.09 (-2.37)** -0.31 (-3.06)*** 0.30 (3.16)*** 1.92 1780

Note: value of z statistics in parentheses * significant at 10%; ** significant at 5%; *** significant at 1%.

102

Appendix I Table I1. Distribution of HHs by administrative districts of Yerevan in the Sample
Administrative district Ajapnyak Avan Arabkir Davtashen Erebuni Kentron Malatia-Sebastia Nor Nork Shengavit Kanaker-Zeytun Nork-Marash & Nubarashen Total No of HHs 36 17 42 14 43 43 47 51 53 27 11 384 (% of total) 9.4% 4.4% 10.9% 3.6% 11.2% 11.2% 12.2% 13.3% 13.8% 7.0% 2.9% 100.0%

Table I2. Distribution of HHs by number of members in HHs in the Sample, 2008-2011
Number of members Single member HH 2-member HH 3-member HH 4-member HH 5-member HH HHs with 6 and more members 2008 17 44 57 106 69 91 2009 18 45 55 107 68 91 2010 20 44 51 109 67 93 2011 20 41 58 100 73 92

103

Appendix J Table J1. Annual Average per Household capita (Member) Consumption of main/basic food items, 2008-2011 (kg)
Item Wheat bread Wheat flour Rice Macaroni Beef Mutton Pork Poultry meat Sausages and smoked meat Whole milk, liter Sour cream Butter Fresh fish Eggs, piece
Source: NSS, various publications.

2008 130 1.4 5 7.8 8.8 0.3 1.2 7.1 2.2 7.1 2.4 2.2 1 121.4

2009 124.1 1.3 5 7.7 8.4 0.3 1.2 7.5 2.2 7.5 2.2 2.3 1.1 126.1

2010 119.5 1.3 5.3 8 7 0.2 1.3 7.1 1.8 6.8 2.3 2 0.9 133.4

2011 118.6 1.3 4.9 7.7 6.4 0.1 1.2 7.1 1.6 6.2 2.4 1.8 0.8 129.8

Table J2. Price Indices, 2007-2011

Consumer price index Food price index
Source: NSS, 2012.

2007 2008 2009 107.4 117 121 110.3 122.5 121.4

2010 130.9 132.8

2011 141 149.1

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FOR NOTES

105

VILEN V. KHACHATRYAN HARUTYUN T. TERZYAN ANNA R. MAKARYAN

POST-CRISIS DEVELOPMENTS IN ARMENIA

Text Design and Electronic Composition: Marietta Hambardzumyan

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