Economic activities’ response to the COVID-19 pandemic in developing countries

Abstract

Since the occurrence of the COVID-19 pandemic, many governments around the world have instituted several economic policy responses to swathe the real sectors of their economies from the ramifications of the pandemic. However, most economies still remain vulnerable to the pandemic. In this paper, we evaluate and quantify the potential short-run impact of the COVID-19 pandemic on economic activities in eighteen (18) developing countries using monthly time series data on Industrial Production Index and Composite Index of Economic Activity from January 2010 to December 2020. In addition, we employ a state-space model (a Bayesian structural time series model) to estimate the absolute and relative effects of the COVID-19 pandemic on economic activities in those countries. The results of our Bayesian posterior estimate show that, in relative terms, economic activities of six countries have significantly reduced during the occurrence of the COVID-19 pandemic, usually between -4.4% and -16%. Our Bayesian posterior distribution graphs show that the significant negative impacts of the COVID-19 pandemic on economic activities of most of the countries are rather short-lived. This finding suggests that the real sectors of those countries have seen a recovery after being adversely affected by the COVID-19 pandemic. We recommend a continuation of the policy tools introduced by the central banks and the international organizations with a key focus on sectors of that economy that involves significant human interactions such as the hospitality and tourism as well as the aviation industry which was hugely hit by the pandemic.