We develop a model of human interaction to analyze the relationship between globalization and pandemics. Our framework provides joint microfoundations for the gravity equation for international trade and the Susceptible-Infected-Recovered (SIR) model of disease dynamics. We show that there are cross-country epidemiological externalities, such that whether a global pandemic breaks out depends critically on the disease environment in the country with the highest rates of domestic infection. A deepening of global integration can either increase or decrease the range of parameters for which a pandemic occurs, and can generate multiple waves of infection when a single wave would otherwise occur in the closed economy. If agents do not internalize the threat of infection, larger deaths in a more unhealthy country raise its relative wage, thus generating a form of general equilibrium social distancing. Once agents internalize the threat of infection, the more unhealthy country typically experiences a reduction in its relative wage through individual-level social distancing. Incorporating these individual-level responses is central to generating large reductions in the ratio of trade to output and implies that the pandemic has substantial effects on aggregate welfare, through both deaths and reduced gains from trade.
Antràs, P, S Redding and E Rossi-Hansberg (2020), ‘Globalization and Pandemics‘, COVID Economics 49, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-49#392514_392925_391054
We document a causal effect of conservative Fox News Channel in the United States on physical distancing during COVID-19 pandemic. We measure county-level mobility covering all U.S. states and District of Columbia produced by GPS pings to 15-17 million smartphones and zip-code-level mobility using Facebook location data. Then, using the historical position of Fox News Channel in the cable lineup as the source of exogenous variation, we show that increased exposure to Fox News led to a smaller reduction in distance traveled and smaller increase in the probability to stay home after the national emergency declaration in the United States. Our results show that slanted media can have a harmful effect on containment efforts during a pandemic by affecting peopleâ€™s behaviour.
Ananyev, M, M Poyker and Y Tian (2020), ‘The Safest Time to Fly: Pandemic Response in the Era of Fox News‘, COVID Economics 49, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-49#392514_392925_390626
Using data from an original survey conducted in June 2020, this study examines the prevalence, frequency, and productivity of working from home (WFH) practices during the COVID-19 pandemic in Japan. The results reveal that the percentage of employees who practiced WFH was approximately 32%. Labor input attributed to WFH arrangements accounted for approximately 19% of total working hours. Highly educated, high-wage, white-collar employees who work in large firms in metropolitan areas tended to practice WFH. The mean WFH productivity relative to working at the usual workplace was about 60% to 70%, and it was lower for employees who started WFH practices only after the spread of the COVID-19 pandemic. Meanwhile, highly educated, and high-wage employees, as well as long-distance commuters, tended to exhibit a relatively small reduction in WFH productivity.
Morikawa, M (2020), ‘Productivity of working from home during the COVID-19 pandemic: Evidence from an employee survey‘, COVID Economics 49, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-49#392514_392925_390627
How do firms' global connectedness and market power affect their performance and resilience during crises? While global production and export networks expose firms to foreign shocks, they potentially make firms less susceptible to domestic shocks through diversification of suppliers and markets. Also, higher market power could provide buffers by allowing bigger margins of adjustments. Using weekly global stock market data, we show that firms with higher global connectedness (via supply chains and exports) and market power (measured by markups) are more resilient to domestic pandemic shocks. These findings contribute to a better understanding of firms' reaction and reallocation during crises.
Hyun, J, D Kim and S Shin (2020), ‘The Role of Global Connectedness and Market Power in Crises: Firm-level Evidence from the COVID-19 Pandemic‘, COVID Economics 49, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-49#392514_392925_390628
Utilizing newly available data from the SEC on derivative performance and detailed derivative holdings, this paper studies how derivatives impact mutual fund performance, with an emphasis on the COVID-19 pandemic period. In contrast to previous research concluding derivatives are used for hedging, we find that most active equity funds use derivatives to amplify market exposure. Despite the seemingly small weight, derivatives have a significant impact on funds' leverage and contribute largely to fund returns. In response to the initial outbreak of COVID-19, funds trade more heavily on short derivative positions. This behavior is more prevalent among managers residing in states with early state-level Stay-at home orders, where the risk of recession is likely more salient. Funds that used derivatives for hedging purposes before the crisis significantly outperform nonusers by over 9% during the initial outbreak, as their distribution of derivative returns shifts to the right. By the end of June, they still outperform by 1.6%. On the contrary, funds that used derivatives to amplify market exposure underperform, and their distribution of derivative returns shifts to the left. While they do shift strategies, they are slow to open short positions and remain mostly amplifying funds. Consequently, by the time they shift, the market has already started to recover, so that they lose on their short positions. The shifts in derivative return distributions during the COVID-19 crisis are mostly driven by swap contracts, which have been ignored by prior studies.
Kaniel, R and P Wang (2020), ‘Unmasking Mutual Fund Derivative Use During the COVID-19 Crisis‘, COVID Economics 49, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-49#392514_392925_390629
The outbreak of COVID-19 led to a spike in the unemployment rate and a decrease in the number of job openings. It is unknown whether this shock in the labor market affects different groups of job seekers equally. With the help of a correspondence study I describe the relationship between labor market conditions and ethnic labor inequality. The results provide evidence of the changes in the ethnic employment gap during the early stage of the COVID-19 outbreak. Moreover, these changes are accompanied by fluctuations in the labor market competition.
Mavlikeeva, M (2020), ‘Assessing the ethnic employment gap during the early stages of COVID-19‘, COVID Economics 49, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-49#392514_392925_390630