We analyse the role of international trade and health coordination in times of a pandemic by building a two-economy, two-good trade model integrated into a micro-founded SIR model of infection dynamics. Uncoordinated governments with national mandates can adopt (i) containment policies to suppress infection spread domestically, and (ii) (import) tariffs to prevent infection coming from abroad. The efficient, i.e., coordinated, risk-sharing arrangement dynamically adjusts both policy instruments to share infection and economic risks internationally. Â However, in Nash equilibrium, uncoordinated trade policies robustly feature inefficiently high tariffs that peak with the pandemic in the foreign economy. This distorts terms of trade dynamics and magnifies the welfare costs of tariff wars during a pandemic due to lower levels of consumption and production as well as smaller gains via diversification of infection curves across economies.
Acharya, V, Z Jiang, R Richmond and E von Thadden (2020), ‘Divided we fall: International health and trade coordination during a pandemic‘, COVID Economics 60, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-60#392514_392936_391058
The COVID-19 pandemic crisis has triggered unprecedented stimulus policy responses by countries worldwide, particularly fiscal stimulus measures. Given the high fiscal costs, some countries have withdrawn such measures, and other countries are contemplating doing so. In this paper, we empirically examine the impact of the withdrawal of fiscal stimulus policies on stock markets using daily data. To this end, we construct a database of withdrawal events and examine the difference between the pre- and post-event stock price returns using event study analysis and cross-country regressions. The results show a significant negative reaction when stimulus is withdrawn prematurely, i.e., when the daily COVID cases were still high relative to the historical pattern, a reaction which can be compounded by social unrest. The results suggest that markets are concerned about the negative impact of early withdrawals of stimulus on the economic recovery prospect, a risk that policymakers have to account for while contemplating the exit strategy from the exceptional crisis-fighting policies.
Chan-Lau, J and Y Zhao (2020), ‘Hang in there: Stock market reactions to withdrawals of COVID-19 stimulus measures‘, COVID Economics 60, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-60#392514_392936_390676
This paper provides an empirical analysis of the relationship between the strength of family ties and the spread of Sars-CoV-2. The dataset is constructed for a cross-section of 63 countries combining different data sources, to cover seven dimensions: the spread of the virus, family ties, trust and religion, policies implemented to stop the outbreak, status of the economy, geography, demography. We observe a robust positive relationship between family ties and the contagion rate across the world; in particular, the attitude of parents towards the wellbeing for their children is the main force that drives the positive correlation with the contagion. Instead, the respect toward parents (the variable love-parents) seems to be a component of the family ties which negatively correlates with the diffusion of Sars-CoV-2, leading to the final quadratic relationship between the overall family ties strength and the spread of the virus. As conclusive evidence, we observe that the death rate, as well as the recovery rate, are not affected by the strength of family ties and other social capital variables. What matters, in this case, are structural variables like GPD, number of hospital beds per capita, life expectance, median age and geographical location.
Di Gialleonardo, L, M Mare, A Motroni and F Porcelli (2020), ‘Family ties and the pandemic: Some evidence from Sars-CoV-2‘, COVID Economics 60, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-60#392514_392936_390677
In this article, we rely on a periodic public opinion poll indicator of the performance of the mayor, collected for 103 large cities in Italy and in three waves (2015, 2017, and 2020), to examine whether and to what extent the exogenous shift in policy-making decisions induced by the COVID-19 pandemic has affected citizensâ€™ perceptions regarding attributions of responsibility. We leverage the variation in political alignment between central and local governments and implement a difference-in-differences research design, finding that when decisions are fully centralised (during the lockdown), the voter approval for the mayor of an aligned city decreases by of around 7%. Further analyses suggest that our results are more marked (i) during pre-electoral years as compared to other years of a term and (ii) in cities with a lower level of social capital. Lastly, we document that the decrease in the approval ratings of mayors observed in aligned cities reflects a sense of â€˜punishmentâ€™ for the lack of central government preparedness against the pandemic.
Ferraresi, M and G Gucciardi (2020), ‘Centralisation, voter perception, and the sense of government unpreparedness during the COVID-19 pandemic in Italy‘, COVID Economics 60, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-60#392514_392936_390678
Impact evaluations of the microeconomic effects of the COVID-19 upheavals are essential but nonetheless highly challenging. Data scarcity and identification issues, due to the ubiquitous nature of the exogenous shock, account for the current dearth of counterfactual studies. To fill this gap, we combine up-to-date quarterly local labor markets (LLMs) data, collected from the Business Register kept by the Union of the Italian Chambers of Commerce, with the machine learning control method for counterfactual building. This allows us to shed light on the pandemicâ€™s impact on the local economic dynamics of one of the hardest-hit countries, Italy. We document that the shock has already caused a moderate drop in employment and firm exit and an abrupt decrease in firm entry at the country level. More importantly, these effects have been dramatically uneven across the Italian territory and spatially uncorrelated with the epidemiological pattern of the first wave. We then use the estimated individual treatment effects to investigate the main predictors of such unbalanced trajectories, finding that the heterogeneity of impacts is primarily associated with interactions among the exposure of economic activities to high social aggregation risks and pre-existing labor market fragilities. These results call for immediate place- and sector-based policy responses.
Cerqua, A and M Letta (2020), ‘Local economies amidst the COVID-19 crisis in Italy:a tale of diverging trajectories‘, COVID Economics 60, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-60#392514_392936_390679
The coronavirus disease (COVID-19) represents a simultaneous health and economic shock for the vast majority of countries around the world and a wide range of Non-Pharmaceutical Interventions (NPIs) have been used by policymakers to mitigate its spread. It is recognised that this entails an implicit trade-off between health and economic outcomes. This paper investigates this trade-off for 106 developed and developing countries by linking NPIs with quarterly economic growth outcomes. The results indicate that the NPIs that negatively affect growth differ between Advanced Economies (AEs) and Emerging Market and Developing Economies (EMDEs). Testing policy was found to have helped in mitigating the negative economic impact in EMDEs. COVID-19 mortality had a larger impact in EMDEs compared to AEs. Overall, the results might suggest a more favourable short-term trade-off between stringency and economic growth for policymakers in EMDEs. However, this does not account for longer-term economic outcomes.
Kok, J (2020), ‘Short-term trade-off between stringency and economic growth‘, COVID Economics 60, CEPR Press, Paris & London. https://cepr.org/publications/covid-economics-issue-60#392514_392936_390680