This paper empirically investigates whether a community-based development (CBD) approach is effective in mitigating the ill-effect of aggregate shocks. The analysis is based on a three-year panel dataset of approximately 600 households in rural Pakistan where a local NGO has implemented CBD interventions. Results show that the mitigating effect was absent when the control group includes both non-member households in villages under CBD interventions and households in villages without such interventions. On the other hand, a strong spillover effect within the former types of villages from member to non-member households was found, mitigating the ill-effects of aggregate shocks. Furthermore, CBD interventions accompanied by micro infrastructure construction or microcredit provision were found effective in mitigating the ill-effects. These results indicate a possibility that whether a CBD approach mitigates aggregate shocks depends on the type of interventions and the nature of market failures.
