GDP Loss Research Articles

The Impacts of the Coronavirus on the Economy of the United States

We present a formal analysis of the macroeconomic impacts of the COVID-19 pandemic in the U.S., China and the rest of the world. Given the uncertainty regarding the severity and time-path of the infections and related conditions, we examine three scenarios, ranging from a relatively moderate event to a disaster. The study considers a comprehensive list of causal factors affecting the impacts, including: mandatory closures and the gradual re-opening process; decline in workforce due to morbidity, mortality and avoidance behavior; increased demand for health care; decreased demand for public transportation and other leisure activities; potential resilience through telework; increased demand for communication services; and increased pent-up demand. We apply a computable general equilibrium (CGE) model, a state-of-the-art economy-wide modeling technique. It traces the broader economic ramifications of individual responses of producers and consumers through supply chains both within and across countries. We project that the net U.S. GDP losses from COVID-19 would range from $3.2 trillion (14.8%) to $4.8 trillion (23.0%) in a 2-year period for the three scenarios. U.S. impacts are estimated to be higher than those for China and the ROW in percentage terms. The major factor affecting the results in all three scenarios is Mandatory Closures and the Partial Reopenings of businesses. These alone would have resulted in a 22.3% to 60.6% decrease in U.S. GDP across the scenarios. Pent-up Demand, generated from the inability to spend during the Closures/Reopenings, is the second most influential factor, significantly offsetting the negative impacts stemming from other causal factors.

The Impacts of Climate Change on Agricultural Production, Land Use and Economy of the Legal Amazon Region Between 2030 and 2049

Abstract Global warming and climate impact on agricultural output, land use and food production. This paper seeks to verify the economic impacts of climate change in the Legal Amazon region, especially on agricultural production, land use, GDP and job creation. We employ the Computable General Equilibrium (CGE) model, REGIA - Inter-regional General Equilibrium Model for the Brazilian Legal Amazon, to assess changes in agricultural production and land use in the region due to climate change scenarios proposed by the IPCC (Intergovernmental Panel on Climate Change). The results indicate a drop in economic indicators in the Legal Amazon leading to a loss in real GDP in the order of 1.18% in 2049 due to decrease in production and employment in the agricultural sector. Deforestation will increase due to the gradual replacement of pasture areas by crop fields. Such changes are not homogeneous in the space, affecting more the states of Mato Grosso, Tocantins and Para, whose economy are dependent upon agriculture.

The Cost of Dissolving the WTO: The Role of Global Value Chains

As trade agreements face renewed pressure, we show that the rise of global value chains has multiplied the value of trade agreements to unprecedented levels. We cast our argument using a non-parametric neoclassical trade model that accommodates global input-output networks and nests a wide class of quantitative trade models as a special case. To guide our analysis, we derive analytic formulas for optimal non-cooperative trade taxes in this general framework. These formulas predict the extent of trade restriction if global trade agreements were to dissolve. Mapping these formulas to data, we quantify the value of trade agreements for various countries. We find that the disintegration of existing trade agreements will erase 30% of the overall gains from trade, which amounts to a $2.7 trillion loss in global GDP. Around 41% of this value is driven by the agreements’ facilitation of global value chains.

Local Sectoral Specialization in a Warming World

This paper quantitatively assesses the world's changing economic geography and sectoral specialization due to global warming. It proposes a two-sector dynamic spatial growth model that incorporates the relation between economic activity, carbon emissions, and temperature. The model is taken to the data at the 1o by 1o resolution for the entire world. Over a 200-year horizon, rising temperatures consistent with emissions under Representative Concentration Pathway 8.5 push people and economic activity northwards to Siberia, Canada, and Scandinavia. Compared to a world without climate change, clusters of agricultural specialization shift from Central Africa, Brazil, and India's Ganges Valley, to Central Asia, parts of China and northern Canada. Equatorial latitudes that lose agriculture specialize more in non-agriculture but, due to their persistently low productivity, lose population. By the year 2200, predicted losses in real GDP and utility are 6% and 15%, respectively. Higher trade costs make adaptation through changes in sectoral specialization more costly, leading to less geographic concentration in agriculture and larger climate-induced migration.

Empirical Modelling of Confirmed Covid-19 Cases in Nigeria: Forecasts and Implications

The world greeted the New Year 2020 with varying degrees of optimism. Overall, forecasts for 2020 were made with cautious optimism given the global slowdown in 2019. While at this, the Chinese city of Wuhan was being ravaged by a deadly severe acute respiratory syndrome coronavirus (SARS-CoV-2), which caused the 2019-nCoV or COVID-19 disease. The disease described by the World Health Organisation as a pandemic has dealt a severe blow on the health system and economic activities on a global scale. Substantial uncertainties surround the appreciation of the precise nature of the health challenge, its spread over time and other aspects all of which further complicate the deployment of appropriate measures in clinical interventions as well as dampen the effectiveness of broader macroeconomic policies especially for the developing countries with their multifarious structural weaknesses. This paper explored the nature of the COVID-19 both in terms of the shape of its growth curve and then estimated the basic reproduction number on the one hand, while also providing forecast of the path of the pandemic, particularly the number of infections for Nigeria. The Poisson, Negative Binomial and Wallinga and Teunis (2004) modelling techniques were used on data from Nigeria. As at April 28, 2020, the COVID-19 curve for Nigeria was upward sloping in nature with the steepness becoming marked from around 30 March 2020. This was about the same period that government ordered the lockdown of the epicentres of the pandemic. Also, the basic reproduction number was both time variant and relatively high for the national (2.25) and subnational [Lagos (3.44) and Abuja (2.77)] cases. The projections from the two standard models suggested that the incidence of infections may just begin to taper off by the end of the second quarter before stabilising at about the third quarter of 2020. This is suggestive of huge trade-offs with respect to losses in potential GDP and thereby of the need for government and other stakeholders to come up with proactive steps to mitigate the severity and reduce the duration of the imminent economic recession that will culminate.

Lockdown Accounting

We measure the effect of lockdown policies on employment and GDP across countries using individual- and sector-level data. Employment effects depend on the ability to work from home, which ranges from about half of total employment in rich countries to around 35% in poor countries. This gap reflects differences in occupational composition, self-employment levels, and individual characteristics across countries. GDP effects of lockdown policies also depend on countries' sectoral structure. Losses in poor countries are attenuated by their higher value-added share in essential sectors, notably agriculture. Overall, a realistic lockdown policy implies GDP losses of 20-25% on an annualized basis.

Macroeconomic Risks Across the Globe Due to the Spanish Flu

We characterise the distribution of expected GDP growth during the Great Influenza Pandemic (known also as Spanish Flu) using a non-linear method in a country panel setting. We show that there are non-negligible risks of large GDP losses with the 5% left tail of the distribution suggesting a drop in the typical country's real per capita GDP equal to 29.1% in 1918, 10.9% in 1919 and 3.6% in 1920. Moreover, the fall in per capita GDP after the Spanish FLu was on average particularly large in low-income countries. Particularly, the size of the GDP drop in the lower tail of the distributions is high for higher income countries and immense for lower income countries. As for the United States, the estimated size of the recession in the lower tail of the distribution following the Spanish Flu is not negligible. JEL Classification: E3, I0

An International Analysis of the Economic Cost for Countries Located in Crisis Zones

We study the impact on a country’s economy of sharing a direct land border with a country experiencing conflict. Through analysing sixty-three major episodes of regional instability during the period between 1990 and 2016 by using panel data methods applied to unrestricted error correction model, the opportunity cots of such regional conflict is examined. The resulting estimates of GDP loss are most profound for countries in Africa, Asia and the Middle East. Regional turmoil resulting from conflict has been found to have significantly reduced GDP growth in Angola, China, Kuwait, Mauritania, Saudi Arabia, Sudan and Tanzania, with estimates ranging from over 3% to 7% average reductions in GDP growth rate using both pooled OLS and fixed effects estimations (with an international average of 0.95% and 1.18% respectively). This considerable opportunity costs of military expenditure raise an important and challenging question to the concerned governments about the economic and social rightfulness of this expenditure and whether their people ultimately pay the price for the government decisions of increasing military spending.

Economy-wide effects of coastal flooding due to sea level rise: a multi-model simultaneous treatment of mitigation, adaptation, and residual impacts

This article presents a multi-model assessment of the macroeconomic impacts of coastal flooding due to sea level rise and the respective economy-wide implications of adaptation measures for two greenhouse gas (GHG) concentration targets, namely the Representative Concentration Pathways (RCP)2.6 and RCP4.5, and subsequent temperature increases. We combine our analysis, focusing on the global level, as well as on individual G20 countries, with the corresponding stylized RCP mitigation efforts in order to understand the implications of interactions across mitigation, adaptation and sea level rise on a macroeconomic level. Our global results indicate that until the middle of this century, differences in macroeconomic impacts between the two climatic scenarios are small, but increase substantially towards the end of the century. Moreover, direct economic impacts can be partially absorbed by substitution effects in production processes and via international trade effects until 2050. By 2100 however, we find that this dynamic no longer holds and economy-wide effects become even larger than direct impacts. The disturbances of mitigation efforts to the overall economy may in some regions and for some scenarios lead to a counterintuitive result, namely to GDP losses that are higher in RCP26 than in RCP45, despite higher direct coastal damages in the latter scenario. Within the G20, our results indicate that China, India and Canada will experience the highest macroeconomic impacts, in line with the respective direct climatic impacts, with the two first large economies undertaking the highest mitigation efforts in a cost-efficient global climate action. A sensitivity analysis of varying socioeconomic assumptions highlights the role of climate-resilient development as a crucial complement to mitigation and adaptation efforts.

The Testing Multiplier: Fear vs Containment

This paper studies the economic effects of testing during the outbreak of a novel epidemic disease. I propose a model where testing permits isolation of the infected and provides agents with information about the prevalence and lethality of the disease. Additional testing reduces the perceived lethality of the disease, but might increase the perceived risk of infection. As a result, more testing could increase the perceived risk of dying from the disease - i.e. stoke fear - and cause a fall in economic activity, despite improving health outcomes. Two main insights emerge. First, increased testing is beneficial to the economy and pays for itself if performed at a sufficiently large scale, but not necessarily otherwise. Second, heterogeneous risk perceptions across age-groups can have important aggregate consequences. For a SARS-CoV-2 calibration of the model, heterogeneous risk perceptions across young and old individuals mitigate GDP losses by 50% and reduce the death toll by 30% relative to a scenario in which all individuals have the same perceptions of risk.

Influence of Expenditures in the Development of the Digital Economy on the Volume of Russia's GDP

The purpose of this work is to assess the effectiveness of achieving planned investment indicators within the framework of the national program «Digital Economy of the Russian Federation» and the adequacy of investments in the digitalization of the economy to form positive dynamics of Russia's GDP. The hypothesis is tested about the presence of influence, along with the indicators of the functioning of traditional sectors of the economy, of indicators of digital sectors of the economy and indicators of investments in digital transformation in Russia. The methodology for such calculation is based on the theory of elasticity, which can be used to analyze the efficiency of resources (investments) in the case of alleged underfunding of a certain economic entity, that took place in the case of the specified program. This technique involves the construction of a Cobb-Douglas production function. The data of Russian statistical compilations in the regional context for the period from 2015 to 2018 were used as an information base for calculating and constructing a production function. Within the adopted specification of the cross-sectional regression model, the parameters of the production function were determined for each year within the specified period. Also, the predicted values ​​of the indicators of the used information base for 2019 and 2020 were determined using the linear regression method, and, proceeding from them, parameters of the production function were determined. Due to the incompatibility of data on the indicator of internal costs for the development of the digital economy in the program «Digital Economy of the Russian Federation» and the statistical indicator of the cost of information and communication technologies, it was necessary to calculate the ratio between these indicators. The solution to this problem showed that these indicators are in good agreement with each other with a difference of only a few percent. The final result of the study is an assessment of GDP losses while maintaining the dynamics of digitalization costs observed in 2015-2018, suggesting continuation of the trend towards the Digital Economy of the Russian Federation program being underfunded in 2019 and 2020.

Optimal carbon allowance price in China’s carbon emission trading system: Perspective from the multi-sectoral marginal abatement cost

China’s carbon emission trading system (ETS) was officially launched at the end of 2017 to further promote carbon emissions mitigation. In the ETS, the carbon price is the key factor determining whether the emission reduction target can be achieved. The optimal carbon price is the smallest marginal abatement cost that can achieve the emission reduction target. This study simulates the marginal abatement cost curves of different sectors in China’s ETS and calculate the optimal carbon price of sector coverage scenarios based on the criteria that involve eight sectors in turn. The results show that the marginal abatement cost decreases with increasing sector involvement. The optimal carbon price to achieve the two intensity targets at the same time is between 345 yuan/ton and 1140 yuan/ton. From the sectoral perspective, the power sector undertakes the largest emission reduction, while the transportation sector is responsible for smaller emission reduction. China’s ETS will cause GDP losses from 1.63% to 2.27% compared with the BAU scenario, but it can achieve CO2 reduction from 9.56% to 10.13%.

Pharmacoeconomic study of rivaroxaban and acetylsalicylic acid combination use in patients with coronary artery disease and/or peripheral artery disease

Aim. Comparative assessment of the economic results of rivaroxaban/acetylsalicylic acid (ASA) combination and ASA monotherapy use in patients with coronary artery disease (CAD) and/or peripheral artery disease (PAD). Material and methods. Based on the results of a large international multicenter, placebo-controlled, randomized clinical trial COMPASS, a model that evaluated the clinical outcomes of rivaroxaban/ASA combination and ASA monotherapy was formed. The economic results using cost and cost-effectiveness analyses, and budget impact analysis for two years were also calculated. The analysis took into account both direct medical costs (expenses for treatment, hospitalization due to complications, rehabilitation) financed under the compulsory health insurance, as well as indirect costs (loss of GDP due to disability or death). The calculation was made by accounting 100,000 patients with CAD and/or PAD.Results. Modeling of clinical outcomes per 100,000 patients based on COMPASS results showed a decrease of stroke prevalence by 649 cases, myocardial infarction — 301 cases, amputations — 478 cases, cardiovascular mortality — 476 cases when using rivaroxaban/ASA combination compared with ASA monotherapy. The cost-effectiveness analysis showed that rivaroxaban/ASA combination has greater clinical efficacy and lower costs in comparison with ASA monotherapy. Budget impact analysis showed that the switching of 100,000 patients with CAD and/or PAD from ASA monotherapy to rivaroxaban/ASA combination leads to budget savings of 1,026 million rubles in two years. This is due to a decrease in the incidence of cardiovascular events.Conclusion. It was found that the use of a rivaroxaban/ASA combination in comparison with ASA monotherapy in patients with CAD and/or PAD can both decrease a number of complications and lead to cost savings, despite the initially higher cost pharmacotherapy.

The Effects of EU–Japan Economic Partnership Agreement for Poland’s Economy

The article analyzes the impact of the EU–Japan Economic Partnership Agreement (EPA) on Poland’s economy. The authors investigate the effects of a bilateral elimination of customs duties on the economy using the Computable General Equilibrium framework and the GTAP database. The impact of the bilateral elimination of customs duties on GDP, production, trade and social welfare in Poland is examined and compared with other countries and regions. According to the research results, the EPA will bring positive impact on many aspects of Polish economy, but the effects in some other areas may be negative. Positive production and trade results are expected in some sectors, such as meat and animal products, leather and processed food, but some other sectors, such as motor vehicles and transport equipment, electronics and machinery, may experience a drop in output and export volumes. Total export value gains for Poland are estimated to be about USD 135 million, but in most sectors production will decrease, which may cause a loss in the real GDP.

Potential of Land-Based GHG Mitigation Policy to the Indonesian Economy

Indonesia GHG emission mostly originated from the Land-Use Change and Forestry (LUCF) sectors. The complexity of land conversion pattern and different carbon stocks for each land type makes have made the mitigation and emission calculations for the LUCF more challenging. However, the Indonesian government has already introduced some policy package to reduce the deforestation and increase the reforestation. Here we, simulate the policy to reduce deforestation by increasing the yield of the crops, and increase reforestation. The simulation was done by using the Computer General Equilibrium (CGE) combined with Land Conversion Matrix. The focus of this study was to observe how mitigation, especially from the land-use sector, would affect the economy under the low and high economic growths. The results indicated that the mitigation policy would hit the Indonesian economy harder under the low economic growth, since under the low growth, Indonesia might experienced around 2.7% of GDP loss in 2030 compared to the BAU level. However, if Indonesia is able to achieve high economic growth, the introduction of mitigation, especially through the improvement of crop productivity, might produce better implications to the economy. However, this result also might be overestimated, especially for the GDP due to the consideration of high economic growth and several study limitations in this paper.

Making sense of Brexit losses: An in-depth review of macroeconomic studies

Almost all economic assessments of Brexit conclude that there would be significant losses for both the UK and the EU. This paper examines the driving forces behind these results. We consider the strong economic relationships between the UK and EU both at the sectoral and macroeconomic levels that are at risk from Brexit. We review fifteen studies that explore various Brexit scenarios (hard and soft) and explain why their different methodologies and assumptions yield different degrees of economic damage. Our review concludes that GDP losses for the UK from a hard Brexit range from 1.6% to 7.8%, while a soft Brexit would moderate the losses by roughly half. We also find that potential UK trade agreements with third countries could partially compensate for significant Brexit losses.

Energy transformation cost for the Japanese mid-century strategy

The costs of climate change mitigation policy are one of the main concerns in decarbonizing the economy. The macroeconomic and sectoral implications of policy interventions are typically estimated by economic models, which tend be higher than the additional energy system costs projected by energy system models. Here, we show the extent to which policy costs can be lower than those from conventional economic models by integrating an energy system and an economic model, applying Japan’s mid-century climate mitigation target. The GDP losses estimated with the integrated model were significantly lower than those in the conventional economic model by more than 50% in 2050. The representation of industry and service sector energy consumption is the main factor causing these differences. Our findings suggest that this type of integrated approach would contribute new insights by providing improved estimates of GDP losses, which can be critical information for setting national climate policies.

An international analysis of the economic cost for countries located in crisis zones

We study the impact on a country’s economy of sharing a direct land border with a country experiencing conflict. Through analyzing sixty-three major episodes of regional instability during the period between 1990 and 2016 by using panel data methods applied to unrestricted error correction model, the opportunity cost of such regional conflict is examined. The resulting estimates of GDP loss are most profound for countries in Africa, Asia, and the Middle East. Regional turmoil resulting from conflict has been found to have significantly reduced GDP growth in Angola, China, Kuwait, Mauritania, Saudi Arabia, Sudan, and Tanzania, with estimates ranging from over 3% to 7% average reductions in GDP growth rate using both pooled OLS and fixed effects estimations (with an international average of 0.95% and 1.18% respectively). This considerable opportunity costs of military expenditure raise an important and challenging question to the concerned governments about the economic and social rightfulness of this expenditure and whether their people ultimately pay the price for the government decisions of increasing military spending.

The Impacts of the Shrinkage in Goods Exports on Chinese Economy: A CGE Model-Based Scenario Analysis

Focusing on the shrinkage in goods exports, this paper quantitatively analyzes the impacts of Sino-US trade war on growth, trade, industrial production of China. The method used here is a dynamic simulation for the period from 2019 to 2030 based on a recursively dynamic CGE model of 18 industries. The impacts are analyzed and assessed by providing 5 alternative scenarios and by comparing their deviations from the baseline scenario. Three alternative scenarios are diffident forms of reduction in goods exports, and two alternative scenarios are diffident hedging measures to the impacts. A comparison of alternative scenarios reveals that the reduction in goods exports will significantly affect the nominal GDP but cause trouble for the real GDP of China. As the hedging measure, the currency depreciation ultimately only affects the price, and the effect on the real GDP is very limited. To increase the domestic real investment will result in the increase in imports and significantly hedge the loss of nominal GDP and cause a larger-scale trade deficit, and therefore need to be used with caution.

The impact of green house gas mitigation policy for land use and the forestry sector in Indonesia: Applying the computable general equilibrium model

Indonesia's economy relies heavily on the land-based sector, which results in high deforestation and forest degradation that leads to large emissions from Land Use Change and Forestry (LUCF). Under its Nationally Determined Contributions, Indonesia has committed to achieving emission reductions of 29% by 2030 as compared to the business-as-usual (BAU) scenario. However, as the largest share comes from LUCF, mitigation efforts in this sector will reduce its production. This study assesses the potential impact of the implementation of the mitigation efforts in the LUCF sector on the economy and environment through the use of a computable general equilibrium model. Two main approaches were introduced to reduce emissions: 1) increasing the crop yield (intensification), which is expected to motivate farmers to use less land and thus, lead to a decrease in deforestation; and 2) encouraging land conservation. Our simulation indicated that intensification alone results in less GDP loss but does not significantly reduce deforestation and emissions from LUCF as farmers will still cultivate the land as usual, and land expansion for commercial plantations, especially palm oil, will continue. Therefore, introducing conservation practices, though costly, may help to protect forest areas and reduce emissions from LUCF. Thus, the simultaneous implementation of intensification and conservation efforts is recommended. To this end, cooperation between the central and regional governments is necessary along with an incentive scheme that encourages farmers to adopt mitigation efforts on their lands.