Abstract
The COVID-19 pandemic has triggered an unprecedented economic crisis. This article analyses the impact of mandatory social distancing imposed by lockdown policies and voluntary social distancing triggered by COVID-19 fatality rates on GDP growth in the first three quarters of 2020 for a sample of 42 countries. OLS and IV results indicate an important role for the fatality rate, while panel regressions show that lockdown stringency is the more important driver of growth. When including lagged variables, more restrictive measures lead to lower GDP growth in the same quarter but are associated with a positive, catching-up effect in the following quarter.
Highlights
The coronavirus pandemic has triggered a massive health crisis across the globe
Governments enacted restrictions, i.e. the economic effects of mandatory social distancing, and differences in the fatality rate associated with the virus, i.e. the economic effects of voluntary social distancing triggered by the fatality rate
Fatality rate, i.e. the number of reported deaths related to COVID-19, serving as a proxy for the severity of health risks triggering voluntary social distancing,2 has a significantly negative effect on GDP developments in 42 countries for the first three quarters of 2020 while accounting for lockdown severity, i.e. the degree of mandatory social distancing imposed by the authorities, captured by the Stringency index compiled by Oxford University (Hale et al, 2020)
Summary
The COVID-19 pandemic has triggered an unprecedented economic crisis. This article analyses the impact of mandatory social distancing imposed by lockdown policies and voluntary social distancing triggered by COVID-19 fatality rates on GDP growth in the first three quarters of 2020 for a sample of 42 countries. Other countries enacted strict lockdowns, either because they recorded quickly rising infection and fatality rates, as was the case in Italy and Spain, or because governments considered the degree of voluntary social distancing as insufficient to keep the pandemic under control, e.g. in Germany or Denmark (Brauner et al, 2020; Farboodi et al, 2020) They aimed at limiting the economic damage of an unrestrained spread of the virus, i.e. the direct costs such as the loss of working time and the rise in medical costs (Gros, 2020) as well as the costs associated with voluntary social distancing triggered by rapidly rising health risks (Eichenbaum et al, 2020).
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