Economic resilience is typically used in two distinct, but overlapping, ways (see for example, Hallegatte, 2014). At one level it can be broadly defined as the ability of an economy as a whole to cope, recover from and reconstruct after a shock. At the same time, it is often used to refer to the economic resilience of individual households or firms, and their ability to cope with or recover from a shock and adapt to changing economic circumstances in the wider economy. In this case, it can relate to the distributional effects of a shock (who is affected and how) as well as the vulnerability of individuals to the shock and the nature of any welfare provisions that are in place. The two concepts are mutually inter-related as each can depend on, and influence, the other.
At the heart of this way of thinking though is the notion that resilience is about minimising (aggregate) welfare losses. The higher the level of economic resilience, the lower will be the economic losses incurred from a shock over time. An alternative concept is to think about how resilience might promote welfare gains. It is this concept that underlies much thinking from development economics, which broadly holds that strengthening the economic assets of individuals and communities will enable them to be more resilient in the face of economic shocks.
The concept of economic resilience includes two key components. The first is the ability of an economy of households, firms or an economy to withstand or absorb an economic shock. The second is a more dynamic component, which relates to the ability of households, firms or the economy more widely, to adapt to changing circumstances and strengthen their ability to respond to potential future shocks.
Whilst much of our understanding of economic resilience focuses on the nature of the assets (including financial, physical and social capital) available to individuals, firms or across an economy as a whole, there is an increasing recognition of the role of choices (and the scope to make and act on choices) as an influence on resilience outcomes.
Hallegatte, Stephane. 2014. Economic Resilience : Definition and Measurement. Policy Research Working Paper;No. 6852. World Bank, Washington, DC. © World Bank. https://www.openknowledge.worldbank.org/handle/10986/18341 License: CC BY 3.0 IGO.