Covid 19-Pandemic

1

Laura Alfaro

Harvard Business School

& NBER

It’s Health Shock: Global

• https://www.ecdc.europa.eu/en/geographical-distribution-2019-ncov-cases

• https://coronavirus.jhu.edu/map.html

It’s an Economic Shock

Supply, Demand, Financial

Global Economics Shock: Advanced, Emerging, Advanced

- For many EMEs, the economics shocks hit before the health shock:

- Disruption of supply chains, collapse of trade, commodity prices,

tourism, remittances, and capital flows.

Collapse Trade & Commodity Prices

Chart 1 - World merchandise trade volume, 2000-2022Index, 2015=100, Source: WTO Secretariat.

- Supply, global and regional value chains

- Demand

- Policy (Regulation, Protectionism/medical, food)

Collapse in Tourism

https://webunwto.s3.eu-west-1.amazonaws.com/s3fs-

public/2020-03/UNWTO-Impact-Assessment-COVID19.pdf

Collapse in Flows

Sudden Stop: Steeper and Faster

http://documents.worldbank.org/curated/en/989721587512418006/pdf/COVID-19-Crisis-Through-a-Migration-Lens.pdf

High Leverage

Individuals, Firms, Countries

https://unctad.org/en/PublicationsLibrary/gdsinf2020d3_en.pdf

Previous Position: Weak

Economic, Fiscal, Social, Security

5.75.2

6.15.8

7.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

2015 2016 2017 2018 2019

GOBIERNO CENTRAL: DÉFICIT FINANCIERO(Como % del PIB nominal)

Fuente: BCCR

Costa Rica:

High Fiscal Deficits after Tax Reform and Growing Economy

EMEs and Covid-19: Shutting Down in a World of

Informal & Tiny Firms

Alfaro, Becerra, Eslava (2020)

0% 20% 40% 60% 80% 100%

High Contact Job

Can telework

Works at 11-50employees

Works at 10 employeesor less

Self-employed

Informal

Fraction of workers

Employment Characteristics: Colombia and USA

USA Colombia

2.7

7.1

3.3

9.1

5.1

13.5

3.8

9.0

1.6

3.2

9.99.9

9.9

0.0

0.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

Colombia US Colombia US Colombia US Colombia US Colombia US

Crisis t=1 Crisis t=2 Crisis t=3 Recovery t=1 Recovery t=2

Millions

of

work

ers

Jobs at Risk: Strict Distancing Policy (Lockdown)

Formal Informal

Unprecedented Policies

Local, State, National Public & Private

https://covidtracker.bsg.ox.ac.uk

https://www.imf.org/en/Topics/imf-and-covid19/Policy-Responses-to-COVID-19

Debt Relief Poorer Countries

Multilaterals

World Bank

✔@WorldBank

Suspending bilateral debt payments will help

the poorest countries respond to #Coronavirus.

Our International Debt Statistics 2020 report

shows how the total external debt of low- and

middle-income countries has climbed.

http://wrld.bg/5kGA50zreAd

146

3:00 AM - Apr 29, 2020

https://blogs.worldbank.org/voices/may-1-2020-end-week-update-debt-relief-

worlds-poorest-countries

Debt Relief: And China?

Covid-19 Shutdown: Type of Recessions

V U W L

It’s a Global Economic Shock

Source: IMF, WEO 2015.

?

Central America

FMI Banco Mundial2020 2021 (?) 2020 2021 (?)

América Latina y el Caribe -5,2 3,4 -4,6 2,6

Guatemala -2,0 5,5 -1,8 4,4

El Salvador -5,4 4,5 -4,3 4,8

Honduras -2,4 4,1 -2,3 3,9

Nicaragua -6,0 0,0 -4,3 1,9

Costa Rica -3,3 3,0 -3,3 4,5

Panamá -2,0 4,0 -2,0 4,2

Source: IMF, WB.

?

It’s a Global Health Shock: Policies & FearAlfaro, Faia, Lamersdorf, Saidi (2020)

Social Interactions in Pandemics: Fear, Altruism, and Reciprocity

• Daily data for 89 cities worldwide: mobility declines with

risk perception (Google searches); norms (altruism, etc.)

– “Exit strategies”: ending the “lockdown” would not

necessarily bring people back to previous social

activity and spending.

• “You can open up the economy all you want, but when

they’re hiring refrigerator trucks to deliver dead bodies to

transport them to the morgues, not many people are

going to go out of their houses… blaming the

economic collapse on the policy, rather than on the

problem, is fallacious.” Larry Summers, HBS,04/20.

• It’s a Health Shock!

Solution to a Health Shock

Testing, Treatments, Equipment and Vaccines

In the meantime: distancing (de facto/ de jure)

Progression of the disease: Stock Market/ Labor Market

Alfaro, Chari, Greenland, Schott (2020) show that day-to-day changes in the predictions of standard models of infectious disease forecast changes in aggregate stock returns in pandemics (Covid-19, SARs)/ ability to adjust costs.

Concerns

- Delay vaccine, treatments;

- No immunity;

- Longer lasting effects; etc.

213 Treatments in consideration

133 Vaccines in development

https://milkeninstitute.org/covid-19-tracker

https://www.health.harvard.edu/diseases-and-

conditions/treatments-for-covid-19

Concerns

• “Medical” worst-case scenarios; Protectionism (Medical and Food)

• Policies: What will stay, what should stay, what will need investment?

• Liquidity-insolvency (duration of recovery, V?)

– What are people and firms going to buy, when?

• Hysteresis: “on-line” world; precautionary savings, etc.

• EMEs, developing: fiscal space to spend

– Capacity to spend so much so quickly? Institutional limitations

• Transparency/accountability

– Save “every job, every firm” versus more targeted policies

• Vulnerable; formal versus informal

• “All it takes” Every 10 years?

– Debt 80s, 90s (Tequila, Asian, ...), 00s (Brazil,…), GFC, Covid-19, Climate.