Research in the societal consequences of the Covid-19 Pandemic

The COVID-19 pandemic represents an unprecedented global crisis. The task for economic policy is to help keep people alive, enterprises afloat, and households out of poverty.

In this paper Finn Tarp (with co-authors Tony Addison and Kunal Sen) discuss macroeconomic dimensions, focusing on the developing world. The paper concludes that the pandemic could reinforce the existing trend towards higher social inequality.

The discussed macroeconomic dimensions are the following: First, the pandemic affects macroeconomic stability and growth. Second, the tools of macroeconomic policy - fiscal and monetary policy together with debt management and exchange rate policy - must deal with the economic shock. Simultaneously, policy makers must find fiscal space to fund health, social protection, and livelihood support. Third, success in dealing with the virus itself will be a big determinant of macroeconomic outcomes: the size of the GDP loss, the duration of the recession, and the outcomes for the fiscal deficit and debt ratios.

Read the entire working paper COVID-19: macroeconomic dimensions in the developing world.

Martin Gonzalez-Eiras (with Dirk Niepelt) contrasts the canonical epidemiological SIR model due to Kermack and McKendrick (1927) with more tractable alternatives that offer similar degrees of "realism" and flexibility. Martin and Dirk provide results connecting the different models which can be exploited for calibration purposes. They use the expected spread of COVID-19 in the United States to exemplify our results.

Read the research paper Tractable Epidemiological Models for Economic Analysis.

Sam Jones has published a report for UNU-WIDER (with Eva-Maria Egger, Ivan Manhique, Ricardo Santos)

In high-income countries, the primary policy response to suppress the spread of Covid-19 has been to lockdown large sections of the population for an extended period of time (at least one month). As the disease is spreading in lower income countries, similar sets of policies have been applied or are actively being considered.

However, there is growing unease that replicating policies from high income countries not just poses additional challenges outside these contexts, but it also might inflict irreparable damage on households and even foment social unrest.

In sub-Saharan Africa (SSA), in particular, many people need to leave their homes on a daily basis to access clean water or sanitation facilities, including in urban areas. These challenges are particularly stringent in poor and high-density urban neighborhoods. Also, reflecting high levels of economic informality and urban un(der)employment many families live on a hand-to-mouth basis, with limited savings and lacking in opportunities to either work from home or educate their children online.

In this context, and in the absence of data-driven approaches to estimate the feasibility of lockdown policies, in this note we quantify the extent to which socio-economic conditions are suitable to enact a strict lockdown across SSA.

Using harmonized Afrobarometer data from 2019, covering 34 countries, we construct a simple multidimensional lockdown readiness index. This reveals that just 6 per cent of households overall, or 11 per cent in urban areas, meet all the conditions for a lockdown. As might be expected, our readiness index correlates strongly with other aggregate indicators of development, including GDP per capita. However, this correlation is imperfect and there are notable outliers. 

In addition, we explore the extent to which trust in political institutions and in the local community might offset some of the costs of imposing a lockdown or at least help facilitate other public health interventions.

You can read the full report here.

Pol Campos-Mercade (in collaboration with Armando N. Meier, Florian H. Schneider, Erik Wengstro) finds in this new study that socially responsible behavior is crucial for slowing the spread of infectious diseases.

Economic and epidemiological models of disease transmission abstract from prosocial motivations as a driver of behaviors that impact the health of others. In an incentivized study, Pol and his peers show that a large majority of people are very reluctant to put others at risk for their personal benefit.

The experimental measure of prosociality predicts health behaviors during the COVID-19 pandemic, measured in a separate and ostensibly unrelated study with the same people. Prosocial individuals are more likely to follow physical distancing guidelines, stay home when sick, and buy face masks.

The research group also finds that prosociality measured two years before the pandemic predicts health behaviors during the pandemic. The findings indicate that prosociality is a stable, long-term predictor of policy-relevant behaviors, suggesting that the impact of policies on a population may depend on the degree of prosociality.

Read the research paper Prosociality predicts health behaviors during the COVID-19 pandemic

Paolo Falco and Sarah Zaccagni

Reminders to promote social distancing have been ubiquitous throughout the COVID-19 crisis, but little is known about their effectiveness. Existing studies find positive impacts on intentions to comply, but no evidence exists of actual behavioral change.

We conduct a randomised controlled  trial  with  a  large representative sample  of Danish  residents,  who  receive different versions of are minder to stay home as much as possible at the height of the crisis. We are the first to measure impacts on both intentions to comply and on realised actions in the following days.

We  find  that  the reminder significantly  increases people’s intentions to stay home when it emphasizes the consequences of non-compliance for the respondent or his/her family, while it has not impact when the emphasis is on other people or the country as a whole.

Changes in intentions, however, translate into weaker changes in actions that are  not  statistically  significant.  This  is consistent  with  the  existence  of  important  intention-to-action gaps.

Only people who are in relatively poor health are significantly more likely to stay home after receiving the reminder with an emphasis on personal and family risks. This shows that while reminders may be useful to protect groups at risk by increasing their own compliance with social distancing, such a tool is unable to change the behavior of those who face limited personal risks but could spread the disease.

You can read the entire paper here.

Niels Bohr Professor Morten Bennedsen has received a grant from the Independent Research Foundation Denmark to investigate the consequences of the corona crisis on Danish firms. We expect the first results and public report i June.

The project objectives is this:

Beyond being a major health crisis, the corona crisis is the largest negative shock we have seen to business the last 100 years. We map the consequence through a 2 part survey send out to all active firms in Denmark w 3+ employees. We map impact on employment, estimates of business survival depending on the length of the crisis, business liquidity, financial challenges, and the use and effect of government programs aimed at supporting business during the crisis.

Our 1st contribution is to map these consequences and provide a platform to which we can understand how severe the situation is and what business can do to minimize the cost.

Read the research publication 'Preserving job matches during the COVID-19 pandemic: firm-level evidence on the role of government aid'.

Our 2nd contribution is to combine the survey with register data to investigate what characterize resilient firms: How firm organization, firm type, management practice and leadership style interact with business performance during crisis.

Our 3rd contribution is to evaluate the use and effectiveness of government programs to help business during crisis.Beyond being a major health crisis, the corona crisis is the largest negative shock we have seen to business the last 100 years.

Martín Gonzalez-Eiras (with Dirk Niepelt)

We embed a lockdown choice in a simplified epidemiological model and derive formulas for the optimal lockdown intensity and duration. The optimal policy reflects the rate of time preference, epidemiological factors, the hazard rate of vaccine discovery, learning effects in the health care sector, and the severity of output losses due to a lockdown. In our baseline specification a Covid-19 shock as currently experienced by the US optimally triggers a reduction in economic activity by two thirds, for about 50 days, or approximately 9.5 percent of annual GDP.

Read the full paper.

Asger Lau Andersen, Emil Toft Hansen, Niels Johannesen, and Adam Sheridan

This paper uses transaction-level customer data from the largest bank in Denmark to estimate consumer responses to the COVID-19 pandemic and the partial shutdown of the economy. We find that aggregate card spending has dropped sharply by around 25% following the shutdown. The drop is mostly concentrated on goods and services whose supply is directly restricted by the shutdown, suggesting a limited role for spillovers to non-restricted sectors through demand in the short term. The spending drop is somewhat larger for individuals more exposed to the economic risks and health risks introduced by the COVID-19 crisis; however, pre-crisis spending shares in the restricted sectors is a much stronger correlate of spending responses.

The research is published in PNAS:

“Social distancing laws cause only small losses of economic activity during the COVID-19 pandemic in Scandinavia“
(Niels, Johannesen, Adam Sheridan, Asger Lau Andersen and Emil Toft Hansen)
Proceedings of the National Academy of Sciences (PNAS), 2020

And you can also read about the results in CEPR

Casper Worm Hansen (with Christian Møller Dahl and Peter Sandholt Jensen)

We combine high-quality vital statistics data with annual income data at the municipality level to study the economic aftermath of the 1918-inuenza epidemic in Denmark. Controlling for pre-epidemic trends, we find that more severely affected municipalities experienced short-run declines in income, suggesting that the epidemic led to a V-shaped recession, with relatively moderate, negative effects and a full recovery after 2-3 years. Month-byindustry unemployment data shows that unemployment rates were high during the epidemic, but decreased again only a couple of months after it receded. This evidence also indicates that part of the economic downturn in 1918 predates the epidemic.

Read the full paper

Jeanet Bentzen

In times of crisis, humans have a tendency to turn to religion for stress relief and explanation. The 2020 COVID-19 pandemic is no exception: The demand for religion has risen
dramatically since the onset of the pandemic with political leaders and self-organized groups urging their fellow citizens to pray. I document that Google searches on prayer has skyrocketed during the month of March 2020 when the COVID-19 went global. Using daily data on internet searches for prayer for 75 countries, I find that search intensity for prayer doubles for every 80,000 new registered cases of COVID-19. The results can be understood as religious coping: We pray to cope with adversity.

Read the paper In Crisis, We Pray.