Key Findings from Issues 11-15 of CEPR Covid Economics: Vetted and real-time papers
Covid Economics: Vetted and Real-Time Papers
The economics profession reacted very strongly to the World Health Organization’s confirmation that the novel coronavirus outbreak constituted a global pandemic, and by the end of March CEPR had launched a new publication bringing together vetted and real-time papers to inform scholars and decision-makers in the world’s fight against Covid-19.
‘Covid Economics: Vetted and Real-Time Papers’ – edited by Professor Charles Wyplosz of the Graduate Institute, Geneva, and published by the Centre for Economic Policy Research (CEPR) – has already published over 15 issues. Below are some of the key findings in issues 11-15.
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TOPICS IN FOCUS
• EFFECTS OF CONTAINMENT MEASURES ON COVID-19 CONTAGION
Lockdown and testing help to curb Covid-19 transmission: new evidence
A new study investigates the effectiveness of lockdown and testing in curbing the transmission of Covid-19 infections by drawing on evidence from 69 countries across five continents. The results show that a lockdown significantly affects the number of confirmed cases after 7 days of its implementation and its lag effects are intact even after 21 days of implementation. Testing has no significant effects for at least 14 days after implementation. But after 21 days of implementation, the effects become significant.
Precaution, social distancing and tests: effects on contagion and the economy
Isolating symptomatic individuals has a large effect in delaying and reducing the peak of Covid-19 infections, according to a new study. The combination of this policy with a poor quality test represents only a negligible improvement, whereas with a high quality test, there is an additional delay and reduction in the peak of infections. Social distancing alone cannot achieve similar effects without incurring enormous output losses.
The research explores the combined effect of social distancing at early stages of the epidemic with a following period of tests, and finds that the best outcome is obtained with a light reduction in human interaction for about three months together with a subsequent test of the population over 40 days.
Mandated and targeted social isolation policies flatten the epidemic curve and can help to mitigate the associated employment losses
Mandating social distancing is very effective at flattening the epidemic curve but is costly in terms of employment loss, according to a new study analysing the rate of exposure to Covid-19 for 21 Chinese provinces and a selected number of countries.
But if social isolation policies are targeted towards individuals who are most likely to spread the infection, the employment loss can be somewhat reduced. Voluntary self-isolation driven by individual's perceived risk of becoming infected kicks in only towards the peak of the epidemic and has little or no impact on flattening the epidemic curve.
A new study presents economic analysis of an epidemic in which susceptible individuals may engage in costly social distancing to avoid becoming infected. Infected individuals eventually recover and acquire immunity, thereby ceasing to be a source of infection to others. Equilibrium social distancing arises around the peak of the epidemic, when disease prevalence reaches a critical threshold determined by preferences.
Spontaneous, uncoordinated social distancing thus acts to flatten the curve of the epidemic by reducing peak prevalence. The curve becomes flatter the more infectious the disease and the more severe the health consequences are for individuals.
Containment measures produce a milder recession
Public health measures are essential when social and economic interactions transmit infectious diseases such as Covid-19 because individuals do not take sufficient account of their impact on others. New research calibrated to the main features of Covid-19 in the US economy shows that private individuals perceive the cost of an additional infection to be around $80,000 whereas the social cost is more than three times higher, around $286,000.
This misvaluation has stark implications for how society ultimately overcomes the disease: individually rational susceptible people act cautiously to flatten the curve of infections, but the disease is not overcome until herd immunity is acquired, with a deep recession and slow recovery lasting several years. By contrast, the socially optimal approach isolates the infected and quickly contains the disease, producing a much milder recession.
Using big data technology to resolve the saving lives versus saving livelihoods dilemma: evidence from China
What is the likely effectiveness of big data technology in mitigating the economic and health impacts of the Covid-19 outbreak. A new study makes use of the staggered implementation of contact-tracing apps called ‘health code’ in 322 Chinese cities during the pandemic.
Neha Bairoliya and Ayse Imrohoroglu | Issue 13: May 04
Older adults and those with underlying medical conditions seem especially vulnerable to the pandemic. On the other hand, the US government’s efforts to contain the infection have a disproportionate impact on the working age population.
New research finds that mitigation efforts that target certain age and health groups result in significantly smaller disruptions in the economy. Going forward, introducing subsidies to those with underlying health conditions and/or the elderly to self-isolate might prove to be a useful path in opening up the economy.
Determinants of social distancing and economic activity during Covid-19: evidence that voluntary behaviour changes are as significant as containment measures
New research uses Google mobility data to identify the determinants of social distancing during the Covid-19 outbreak. The results suggest that much social distancing happens regardless of non-pharmaceutical interventions such as closing non-essential business, sheltering in place and school closings. This suggests that restrictions may often function more like a coordinating device among increasingly predisposed individuals than repressive measures per se.
The results are consistent across countries’ income groups with only the poorest showing limited effect of non-pharmaceutical interventions, and no voluntary component, consistent with resistance to abandon sources of livelihood. The direct impact of the voluntary component on economic activity by the fact that the majority of the fall in restaurant reservations in the United States, and movie spending in Sweden occurred before the imposition of any non-pharmaceutical interventions. Widespread voluntary demobilisation implies that releasing constraints may not yield a V-shaped recovery if the reduction in Covid-19 risk not credible.
Health versus wealth? Public health policies and the economy during Covid-19
Non-pharmaceutical policy interventions, such as ‘stay-at-home’ orders, are associated with slower growth of Covid-19 cases. But they are not associated with significantly worse economic outcomes measured by job losses, which have been no higher in US states that implemented ‘stay-at-home’ during the Covid-19 pandemic than in states that did not have ‘stay-at-home’.
These are the central findings of a new study, which demonstrates that the Covid-19 pandemic is a common economic and public health shock. The trade-off between the economy and public health today depends strongly on what is happening elsewhere. This underscores the importance of coordinated economic and public health responses.
No trade-off between GDP and public health: evidence for South Korea and the UK
Government-imposed lockdowns may not present a clear trade-off between GDP and public health, even though their immediate effect is to reduce GDP and infections by forcing people to work from home. New research shows that a premature lifting of lockdown raises GDP temporarily, but infections rise over the next months to a level at which many people choose to work from home, where they are less productive, driven by the fear of infection. A longer lockdown eventually mitigates the GDP loss as well as flattens the infection curve.
The study shows if the UK had adopted South Korean policies, its GDP loss and infections would have been substantially smaller both in the short and the long run. This is not because South Korea implemented policies sooner, but because aggressive testing and tracking more effectively reduce infections and disrupt the economy less than a blanket lockdown.
The researchers also note that low-skill workers and the self-employed lose the most from the epidemic and also from the government policies. But a policy of issuing ‘visas’ to those who have antibodies will disproportionately benefit the low-skilled, by relieving them of the fear of infection and also by allowing them to get back to work.
Effectiveness of lockdowns varies across countries
Lockdown policies are less effective the lower the GDP per capita of a country and the greater the population density, according to a new study. The policies are more effective in countries with higher health expenditure and a bigger proportion of physicians in the population.
These findings can be explained by incentive driven behaviour and resource constraints. Higher population density, larger geographical areas and higher employment rates may require more resources to ensure compliance with lockdown policies. On the other hand, communities with access to better healthcare might be less likely to voluntary practice social distancing.
Working from home in Latin American and Caribbean countries
New research estimates the share of jobs that can be performed at home in 23 Latin American and Caribbean countries as well as workers' characteristics associated with such jobs. The share of individuals who are able to work from home varies from 7% in Guatemala to 16% in the Bahamas. The results confirm that some individuals are better positioned to cope with the current situation than others. This highlights the need to assist the most vulnerable workers in the context of the global pandemic.
Disparities in exposure to Covid-19 across New York City neighbourhoods
New research finds that people’s occupations are crucial for explaining disparities in Covid-19 incidence across New York City neighbourhoods, with occupations with a high degree of human interaction being more likely to be exposed to the virus. Racial disparities still persist for Blacks and Hispanics compared with Whites, although their magnitudes are economically small.
While the magnitudes of effects of many occupations and demographics on exposure decrease over time, there is evidence of higher intra-household contagion as days go by. Moreover, there is selection with testing, whereby residents in worse conditions are more likely to get tested, with such selection decreasing over time as tests become more widely available.
Cultural and economic discrimination as Covid-19 hits the UK: new evidence
A new study finds that the pandemic has disproportionately affected the economically and socially vulnerable places across the UK along the lines of existing economic and cultural divides. The pandemic is likely to exacerbate existing real and perceived deprivation on the brink of an expected economic shock at the end of the Brexit implementation period. If health deprivation is compounded by Brexit-related economic blows, greater protests are likely to be the result.
Short-term effects of Covid-19 on poverty in Africa
The number of poor people in Africa would increase by between 59 and 200 million due to contractions in consumption as a result of Covid-19 pandemic. New research presents three scenarios, in all of which West Africa and East Africa are the most affected by contractions in consumption, while North Africa is the least affected among the five regions in Africa.
The findings suggest that the Covid-19 pandemic is a serious threat to achievement of the Sustainable Development Goals. Governments and international organisations should increase efforts to support economic activity in all countries.
Lucas Argentieri Mariani, Jessica Gagete‑Miranda and Paula Rettl | Issue 12: May 01
Citizens’ compliance with measures enacted by health authorities can have an important effect on the state of public health, particularly during epidemics. New research looks at this issue in the context of Brazil, where the president Jair Bolsonaro disrespected the recommendations and measures implemented by health authorities during a country-wide day of pro-government demonstrations amid the Covid-19 outbreak.
The results show that Bolsonaro’s behaviour increased the pace of Covid-19 diffusion. In particular, after the demonstrations, the daily number of new cases was 19% higher in cities with a concentration of Bolsonaro voters compared with cities with a concentration of opposition voters. The quicker spread of Covid-19 was not only due to people coming together to demonstrate, but also due to the changed behaviour of Bolsonaro supporters regarding social distancing measures. Citizens’ compliance with social distancing decreased in pro-Bolsonaro cities after the demonstrations.
Rui Albuquerque, Yrjo Koskinen, Shuai Yang and Chendi Zhan | Issue 11: April 29
The pandemic and the lockdown brought about a massive slowdown of the economy and an unparalleled stock market crash. A new study exploring how firms with high Environmental and Social (ES) ratings fare during the first quarter of 2020 compared with other firms shows that shares with high ES ratings have significantly higher returns, lower return volatilities and higher trading volumes than others. Firms with high ES ratings and high advertising expenditures perform especially well during the crash. This research highlights the importance of ES policies in making firms more resilient during a time of crisis.
Covid-19 market volatility sheds light on ‘dark pools’ of financial trading
‘Dark pools’ – trading venues that do not offer pre-trade transparency – are often suspected of causing difficulties with price discovery and of adversely affecting market quality. A new study of the effects of Covid-19-induced volatility on trading in dark pools finds that increased volatility is linked with an economically significant shift of market share from dark pools to lit exchanges.
When the markets get Covid: contagion, viruses and information diffusion
New research using both contagion data and social media activity about Covid-19 confirms that the market price of contagion risk is very significant. The authors quantify the exposure of major financial markets to news shocks about global contagion risk accounting for local epidemic conditions. They construct a novel data set for a wide range of countries comprising announcements related to Covid19, and high-frequency data on epidemic news diffused through Twitter. Across several classes of financial assets, they provide novel empirical evidence about financial dynamics around epidemic announcements, at a daily frequency, and at an intra-daily frequency.
Sovereign credit ratings affect governments’ ability to use fiscal stimulus to counter the economic fallout from Covid-19
The pandemic has rattled the global economy and required governments to undertake massive fiscal stimulus to prevent the economic fallout of social distancing policies. A new study compares the fiscal response of governments around the world and its main determinants. The authors find sovereign credit ratings as one of the most critical factors determining their choices.
First, the countries with one level worse rating announced 0.3 percentage points lower fiscal stimulus (as a percentage of their GDP). Second, these countries also delayed their fiscal stimulus by an average of 1.7 days. In the 22 most vulnerable countries, based on their rating and stringency, a stimulus equal to 1% of their GDP adds up to $87 billion. To fight the pandemic, long-term loans from multilateral institutions can help these stimulus-starved economies.
Economic policy incentives to preserve lives and livelihoods
Much has been written about the stark choice facing governments in the wake of Covid-19: should they preserve lives or livelihoods? Less has been said about the equally stark choices facing ordinary citizens, yet the decisions they make every day – whether or not to comply with lockdown and social distancing measures, for example – are as important as those made by their governments. A new study concludes that if economic policy incentives are responsible for even a fraction of compliance rates, then policy has a crucial role to play in the fight against Covid-19.
Assessing the impact of the US Paycheck Protection Program
New research provides an initial assessment of the US Paycheck Protection Program by studying the 273 public firms that received a total of $929 million in loans over the period 7-27 April 2020. Despite receiving significant media coverage, these firms comprise 0.3% of the funds disbursed.
Using guidelines specified by the US Small Business Administration, the study documents that about half of public firms were eligible to apply, of which 13% were eventual borrowers. Within the set of eligible firms, public firm borrowers tended to be smaller, have more employees, have fewer investment opportunities, have pre-existing debt balances and be located in a county with Covid-19 cases. Implementing additional eligibility requirements may help target funds towards the most constrained firm.
Covid-19 boosts global adoption of digital finance and fintech apps
The spread of Covid-19 and related government lockdowns have led to a 24-32% increase in the relative rate of daily downloads of finance mobile applications, according to a new study, which draws on mobile application data from 74 countries to document the effects of the pandemic on the adoption of digital finance and fintech. In absolute terms, this equates to an average daily increase of roughly 5.2 to 6.3 million application downloads and an aggregate increase of about 316 million app downloads since the pandemic’s outbreak, taking account of prior trends.
Start-ups and employment in the pandemic: a calculator
Start-ups are being hit hard by the pandemic and the lockdown. Introducing a ‘start-up calculator’ that allows anyone to compute the aggregate employment losses under various economic scenarios, a new study explores the effects of a decline in start-up activity on aggregate employment. The results indicate that employment losses can be substantial and last for more than a decade, even when the assumed slump in start-up activity is only short-lived.
Workers who bear the burden of social distancing policies: new evidence
What are the characteristics of workers in jobs likely to be initially affected by broad social distancing and later by narrower policy tailored to jobs with low risk of disease transmission? A new study finds that workers in low-work-from-home or high-physical-proximity jobs are more economically vulnerable: they are less educated, of lower income, have fewer liquid assets relative to income, and are more likely to be renters.
Household occupations and exposure to Covid-19: evidence from Thailand
The Covid-19 pandemic has disrupted working life in many ways, the negative consequences of which may be distributed unevenly under lockdown regulations. Evidence from Thailand shows that low-income individuals tend to work in occupations that require less physical interaction (lower risk of infection) but are less adaptable to work from home (higher risk of income/job loss) than high-income people. What’s more, positive occupational sorting among low-income couples amplifies these differences at the household level. Consequently, low-income families tend to face a disproportionately larger risk of income/job loss from lockdown measures.
How the first weeks of the coronavirus crisis hit Norway
Crisis-induced temporary and permanent layoffs in Norway quickly spread to industries that were not directly affected by social distancing measures, according to new research. Close to 90% of layoffs are temporary, although this classification may change as the crisis progresses. But there is suggestive evidence of immediate stress on a subset of firms that manifests itself in permanent rather than temporary layoffs.
The study finds that the shock had a strong socio-economic gradient, hit a financially vulnerable population and parents with younger children, and was driven by layoffs in smaller, less productive and financially weaker firms. Consequently, the rise in unemployment is likely to overstate the loss of output associated with the layoffs by about a third.
Pandemic recession: L- or V-shaped?
The lockdown instituted to prevent the spread of the novel coronavirus could have long-lasting negative effects on unemployment, according to a new study of the US labour markets. This is because the lockdown disproportionately disrupts the employment of workers who need years to find stable jobs.
COVID-19 will raise inequality if past pandemics are a guide
Major epidemics in this century have raised income inequality and hurt the employment prospects of people with low educational attainment, while scarcely affecting those with advanced degrees. New research concludes that the Covid-19 pandemic could have similar distributional consequences unless this time is different and government policies end up being effective in raising boats more than yachts.
The long-run persistence of public health outcomes in pandemics: comparing Covid-19 and the Spanish flu
A new study of historical mortality from pandemics finds a strong persistence in public health performance in the early days of the Covid-19 pandemic. Parts of the world that performed poorly in terms of mortality in 1918 during the Spanish flu pandemic are more likely to have higher mortality today. This is true across countries and across a sample of US cities. Experience with SARS is associated with lower mortality today.
Distrust of expert advice, lack of cooperation at many levels, over-confidence, and healthcare supply shortages are likely to have promoted higher mortality today as in the past.
Time for beds: boosting hospital capacity reduces mortality from Covid-19
Cross-country evidence shows that increasing the number of hospital beds leads to a substantial reduction mortality rates from Covid-19. Hospital beds are likely to capture the capacity of ICU, laboratories and other hospital-related equipment. Facing a potential second or third wave of infection following an exit from lockdown policies, countries short on medical infrastructures should increase them immediately.
Seller reputation and price gouging: evidence from the Covid-19 pandemic
As with other crises, the Covid-19 pandemic has seen sudden excess demand for certain goods and consequent price surges. Such price hikes often lead the public to call for laws protecting consumers from price gouging. New research provides evidence that larger and older sellers engage less in price gouging as they risk greater reputational loss from hiking prices in response to excess demand. Policy-makers might use seller reputation as a policy tool by barring new sellers from setting prices higher than incumbent sellers.
Missing emergencies: evidence from Chile on lockdown and health risk during the pandemic
Healthcare practitioners around the globe have observed that the crisis has been associated with an unprecedented decrease in non-Covid-19 visits to emergency departments. New evidence from Chile corroborates this observation and studies the potential causes for this decrease. The research shows that crisis-induced changes in mobility patterns explain a significant portion of the overall drop in non-respiratory emergency room visits, especially for visits related to trauma and poisoning.
The results reveal that an important reason for the dramatic drop in non-Covid-19 use of emergency care is the lower incidence of emergencies. This result suggests that lockdown measures may have the unexpected benefit for public health of freeing up healthcare resources to confront the pandemic.
How to allocate COVID-19 tests across regions: evidence from Italy
Tests are crucial to detect people who have been infected by COVID-19 and to observe in real time whether the dynamics of the pandemic are accelerating or decelerating. But tests are a scarce resource in many countries. New research proposes a data-driven and operational criterion to allocate tests efficiently across regions, with a view to maximising the fraction of tested people who are positive.
When applied to Italian regions, the criterion reveals that the shares of tests that should go to each region differ significantly from the present distribution. Some regions have received too many tests, others too few; substantial share of tests conducted in Lombardy, Veneto and Emilia-Romagna (where the pandemic spread more rapidly at the beginning) should now be allocated to other regions.
Testing and conditional quarantine policies to reduce infections and economic costs
During a period of asymptomatic infection, testing can reveal infection that otherwise would only be revealed later when symptoms develop. Testing therefore makes possible the identification and quarantine of infected individuals and release of non-infected individuals.
New research compares such simple testing and quarantine policies with a baseline quarantine-only policy that replicates the rate at which individuals entering quarantine in the United States in March 2020. The results show that the total deaths that occur under the baseline policy can occur under looser quarantine measures and a substantial increase in random testing of asymptomatic individuals. Testing at a higher rate in conjunction with targeted quarantine policies can dampen the economic impact of the coronavirus and reduce peak symptomatic infections, which is relevant for hospital capacity constraints.
Optimal lockdown policy
A new study examines the optimal lockdown policy for a social planner aiming to control the fatalities of a pandemic while minimising the output costs of the lockdown. The policy depends on the fraction of infected and susceptible in the population, prescribing a severe lockdown beginning two weeks after the outbreak, covering 60% of the population after a month, and gradually withdrawing to 20% of the population after the months.
The intensity of the optimal lockdown depends on the gradient of the fatality rate with respect to the infected, and the availability of antibody testing that yields a welfare gain of 2% of GDP. A test-tracing and quarantine policy is complementary to a lockdown.
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About Covid Economics
The Covid-19 breakout challenges all areas of economics including, but not only, health, industrial organization, macroeconomics, finance, history, development, inequality, political economy and public finance, and concerns theory as well as empirical evidence. We are thus looking for submissions in all these areas and aim to have a wide geographical coverage.
Submissions are promptly evaluated by the Editorial Board, usually over a maximum of 48 hours, on an accept/reject basis, i.e. no resubmission and no referee report. When a sufficient number of papers are accepted, an issue of Covid Economics: Vetted and Real-Time Papers is published online by CEPR Press, and thus its frequency is determined endogenously. We consider the papers as preprints, a common practice in medicine where results need to be out quickly as input into the debate. Therefore, we encourage all authors to also submit their papers to a professional journal. A number of leading journals have indicated that they will accept such submissions (the list will be announced soon). CEPR-affiliated researchers may also publish them in the CEPR Discussion Paper series.
Submissions are invited from all researchers, not just those affiliated with CEPR. They can be uploaded here. We are looking for reasonably short contributions (approx. 5000 words, though this is not a requirement; submissions could be longer or shorter than this) that make a clear research contribution. Accepted papers will be copy-edited by CEPR staff.
For all enquiries, please email [email protected]