Direct and Indirect Effects of Covid-19 On Life Expectancy and Poverty in Indonesia

Abstract

The spread and threat of Covid-19 have resulted in unprecedented economic and public health responses in Indonesia and elsewhere. We analyse the direct and indirect effects of Covid-19 on life expectancy and poverty in Indonesia, and the responses to the virus. We view life expectancy and poverty as indicators of quantity and quality of life. Our analysis shows that the indirect effects on life expectancy, which operate through lower future income, exceed the direct effects of Covid-19-related deaths by at least five orders of magnitude. The reduction in long-run real income due to the Covid-19 shock may reduce life expectancy by up to 1.7 years, compared with what could otherwise be expected. In contrast, even if the Covid-19 death toll to date were 40 times worse, life expectancy would fall by just two days. Given this imbalance between direct and indirect effects, any interventions to reduce the risk of Covid-19 must be finely targeted and must consider indirect effects. Our analysis of the geographic pattern of poverty effects, which is based on near real-time mobility data, discusses how targeted interventions that are less fiscally costly could be developed. Such interventions should pose less of a threat to future growth and may help to reduce the indirect effects of the Covid-19 shock.