This paper empirically investigates whether a community-based development (CBD)
approach is effective in mitigating the ill effects 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. The results show that the mitigating effect was
absent when the control group included both non-member households in villages under CBD
interventions and households in villages without such interventions. On the other hand, within
the former type of villages, a strong spillover effect 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 to be
effective in mitigating the ill effects. These results suggest the possibility that whether a CBD
approach mitigates aggregate shocks depends on the type of intervention and the nature of
market failures.