Recession to Resurgence: A Cross-Sectional Analysis of the Economic Effects of the COVID-19 Pandemic

Abstract

For a large cross-section of countries, I studied the determinants of the variation in the economic downturn induced by COVID-19, as well as the economic recovery that followed. I find that the lockdown stringency hurt growth in both the downturn and the recovery. The country’s economic structure mattered: a larger share of agriculture and industry, and a smaller share of tourism cushioned the fall; a larger share of services helped a more robust recovery. The country’s financial fragility mattered for both the downturn and recovery. A rise in a government’s debt-to-GDP ratio during the COVID phase worsened both the downturn and the size of the recovery. Broad-based development measures, such as health expenditures, urbanization, and per capita income seemed to make little difference on the direct economic impact, but seemed to indirectly matter by influencing how strictly the country locked down. COVID-related deaths did not seem to matter. The data on vaccinations was too sparse to permit a statistical examination. One final point, when I instrument the lockdown stringency with health expenditures, urbanization, per capita income, and population size, the lockdown stringency is no longer significantly associated with economic outcomes. I infer (speculatively) that some countries may have used more stringent lockdowns in place of more stimulating economic policies, which are hard to measure and so are an important omitted variable. These findings establish a framework for the continued analysis and discussion of economic policies implemented by countries during the pandemic.