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This thesis consists of three standalone chapters that speak to the broad theme of responding to shocks in low- and middle-income countries. Chapter 1 investigates the impact of receiving cash transfers in anticipation of an extreme climate disaster, thereby enabling low-income households to cope with the shock on their own terms. We present quasi-experimental evidence showing the effectiveness of a timelier forecast-based cash transfer delivered to low-income households just before the peak of severe flooding in Bangladesh. We find that the `anticipatory' cash transfer enabled households to change their behaviour and improve their welfare, both during the flood and three months after the intervention. Chapter 2 explores the role of mental imagery in overcoming trauma - largely induced by exposure to violence - by fostering the ability to imagine the future. We design and test a ten-session entrepreneurship training curriculum that teaches mental imagery in business decision making through a randomised control trial in Colombia. We find that mental imagery can be taught as a skill and those who receive imagery training improve their earnings, relative to those who receive a placebo entrepreneurship training. Chapter 3 explores the interaction between public and private cash transfers, recognising that social protection may interact with existing coping strategies. I estimate the extent to which receiving an old-age pension crowds out remittances in post-Apartheid South Africa, using a regression discontinuity design. I find evidence of substantial crowding out in a middle-income country context: for every 1 rand of pension received, 0.22 rand of remittances are displaced on average.

This dissertation comprises three essays on the allocation of labour and capital in a large developing country, Indonesia. In the first essay, I examine the impact of the 1998 East Asian recession on child schooling outcomes in Indonesia. Using panel data on 7-15 year-olds, I exploit the heterogeneous impact of the recession across urban communities as measured by the variation in rice price increases, under the assumption that communities where rice prices increased the most were those where real wages declined the most. I find that for the youngest children (aged 7-12 years) there is a large negative impact of higher rice prices on school attendance and no effect on labour market participation. For older children (aged 13-15 years), schooling enrolment does not respond to rice prices but labour market participation declines sharply in the worst-hit communities. I find no evidence of adverse long-term consequences on human capital formation. In the second essay, I test the hypothesis that there exists a significant earnings differential between similar workers in the formal and informal sectors. Using panel data on salaried and self-employed individuals, I find that after controlling for firm size and individual-specific heterogeneity, there is no formal sector earnings premium, except in the public sector. The results are robust to the presence of unpaid family workers, measurement error, and non-random attrition in the survey. This questions the commonly held belief that labour markets in developing countries are segmented because of legal institutions that protect high formal sector earnings. In the third essay, I estimate the effect of a large exchange rate depreciation on the performance of importers. The ability to manage volatility in the cost of imported inputs is likely to depend on a firm's access to external sources of finance as well its ability to hedge against exchange rate movements. Using data from a census on Indonesian firms, I find that while domestic importers face lower value-added due to a rise in their costs of production, foreign-owned importers fare better: they are more likely to sustain higher value-added, hire more labour and use more materials than domestic owned firms. This suggests another channel through which FDI can add value to a firm in a developing country, particularly with the increasing importance of trade in intermediate goods.