World vs virus: the global economic impact of COVID-19.

• Author: Kordonska, Aleksandra

1. Introduction: historical pandemics vs COVID-19

   Outbreaks of diseases across international borders are defined as pandemic, killing a lot of people. Throughout the history, disease outbreaks have ravaged humanity, affecting it and sometimes changing the trajectory of history. Widespread trade created opportunities for human and animal interactions. The more civilized humans became--with larger cities, more exotic trade routes, and increased contact with different populations of people, animals, and ecosystems--the more likely pandemics would occur. Even in this modern era, outbreaks are nearly constant, though not every outbreak reaches pandemic level as the Novel Coronavirus has. The table 1 presents some of history's most deadly pandemics, from the Plague of Athens to the current Coronavirus Disease 2019 (Hereafter: COVID-19 or Coronavirus) event.

   Despite the fact that virus which emerged in Wuhan (China) has quickly spread all around the world, which is globalized and interconnected as never before, every country responses to pandemic by its own, while the decisions, made by the governments, directly affect people's life. Of course, the main priority is to save the life, but a question also arises--how will the pandemic influence on the economies of the countries? How successful the governments are able to recover after the pandemic is over? How will it influence the quality of people's life?

   The aim of the research is at least partly to answer these questions based on the scientific works, experts' opinions and currently available data. The paper is structured as follows. First of all, we would like to present economic effects of the influenza pandemic (1918-1919), which could be a close analogue to the current crisis, because (a) the 1918 virus was also a 'novel' virus; (b) like Covid-19, no one had immunity to it, and it was highly infectious, spreading through respiratory droplets that pass when an infected person coughed or sneezed; (c) several cities implemented mask mandates, describing them as a symbol of 'wartime patriotism,' but some people refused to comply or take them seriously (Lovelace 2020); d) there also wasn't a vaccine; e) it was the most severe pandemic in recent history. In the next part we show how COVID-19 was spreading worldwide based on the available statistic data. Then, we analyse immediate economic effects of the pandemic and the Coronavirus government response. The next part contains our considerations related to potential economic consequences of the pandemic in a short- and long-term perspective, recommendations and a COVID-19 response of the European Union, the United Nations, the International Monetary Fund and the World Bank. The novelty of our research relies on being able to analyze and predict economic effects of a pandemic just at the beginning of its spreading. The research informs citizens and policymakers about the risks and possible ways to prevent economic crisis and how to deal with the potential consequences.

2. Economic effects of the Spanish flu

   Epidemiologists suggest that global world is faced mainly with threats related to diseases affecting currently developed societies, the so-called civilization diseases such as cancer, diabetes and diseases caused by sedentary lifestyle. The other threat for future existence of humanity is new infectious diseases, taking the form of a pandemic and very costly to combat. The "Spanish flu" pandemic (The influenza pandemic) of 1918-1919 is an excellent example which fully reflects a state of matter. It covered three waves and killed 50 million people worldwide from 1918 through 1919, including 675,000 Americans, according to the Center for Disease Control and Prevention (CDC, 2019b). It is estimated that one-third of the world's population became infected with the virus. The first wave came with the usual flu symptoms. The second wave was dramatically worse. It could set in suddenly, killing patients within days or even hours. The virus would cause their lungs to fill with fluid and the lack of oxygen would make their skin turn blue until they suffocated (Lovelace, 2020).

   While much has been written about the medical causes of the Spanish flu, limited attention has been given to the economic effects of the epidemic which allow for providing predictions concerning economic outcomes of COVID-19 in modern times and establishing appropriate policy responses. The greatest disadvantage of studying the economic effects of the 1918 influenza is the lack of reliable economic data from the time period. The second one concerns the fact that the flu occurred during and shortly after the World War I.

   The large economic disruption due to the epidemic could be found in contemporaneous newspapers. The Wall Street Journal, on October 24, 1918, wrote:

   "In some parts of the country [the pandemic] has caused a decrease in production of approximately 50% and almost everywhere it has occasioned more or less falling off. The loss of trade which the retail merchants throughout the country have met with has been very large. The impairment of efficiency has also been noticeable. There never has been in this country, so the experts say, so complete domination by an epidemic as has been the case with this one" (Correia et al, 2020).

   In contemporary scientific discourse we can find some academic studies that have looked at the economic effects of pandemics using available data. Three cases can illustrate some of the possible outcomes in a rapid-onset pandemic: a mild case (as in the 1968 flu pandemic, cost of 0.7% of GDP), a moderate case (as in the 1958 flu pandemic, cost of 3.1% of GDP), and a severe case (as in the case of the 1918 pandemic, cost of 4.8% of GDP) (Burns et al., 2008).

   Considering short-run costs, it will be appropriate to indicate the recent research concerning the Spanish Influenza Pandemic of Barro, Ursua and Wang (2020). They estimated that the Spanish Flu between 1918 and 1920 resulted in the death of 39 million people globally (a death rate of 2% of the entire population). Authors revealed that the pandemic was responsible for reducing real GDP per capita and real private consumption per capita in the particular country by 6% and 8% respectively. Brainerd and Siegler (2003) analyzed the influence of the influenza on economic growth. Studying changes in real personal incomes between 1919/21 and 1930, they revealed that U.S. experienced a significantly higher income growth rate from the on-set of the influenza to 1930. Meanwhile, Karlsson et al. (2014), providing the comparative analysis, state that, there is virtually no correlation between sectoral composition and Spanish flu mortality, suggesting that the spread of the influenza virus was largely unrelated to initial regional economic conditions.

   Garett (2007) also examines the immediate (short-run) effect of influenza mortalities on manufacturing wages in U.S. cities and states for the period 1914 to 1919. According to economic model (1) of the labour market: A decrease in the supply of manufacturing workers that resulted from mortalities would have had the initial effect on reducing manufacturing labour supply, increasing the marginal product of labour and capital per worker, and thus increasing real wages. Thus, according to the survey, cities and states having greater influenza mortalities experienced a greater increase in manufacturing wage growth over the (short-run) period 1914 to 1919 (Garrett, 2007). At a first glance, such effects seem to reduce absolute poverty and decrease economic inequality. On the other hand, people after the Spanish flu might be infirm and unable to work even after recovery. An increased poverty can be observed amongst individuals who lost their breadwinners in the pandemic.

   Considering the example of Sweden, the pandemic affected the labour supply of females and minors: each deceased person was replaced by 0.45 minors and 0.42 females--whereas the effect on male labour supply is insignificant (Karlsson et al, 2014). Meanwhile, minors were more responsive in the short term, whereas in particular males increased their labour supply in the aftermath of the pandemic (Karlsson et al, 2014). Scientists also observe an effect of the pandemic on poorhouse rates in Sweden which goes far beyond the direct effect coming from dependants losing their breadwinners: on average, each influenza death resulted in four individuals moving into poorhouses. Their findings suggest that poorhouse rates would have increased even if disregarding these dependants. They also proved that the pandemic led to a significant reduction in average worker quality.

   Talking about the long-term effect of the 1918 influenza, we can mention the work of Almond (2006). The study is based on the reviewed evidence that suggested pregnant women who were exposed to the influenza in 1918 gave birth to children who had greater medical problems later in life, such as schizophrenia, diabetes and stroke. The author states that an individual's health is positively related to the human capital and productivity, and thus wages and income. Using 1960-1980 decennial census data, the author found that "(m)en and women show large and discontinuous reductions in educational attainment if they had been in utero during the pandemic. The children of infected mothers were up to 15% less likely to graduate from high school. Wages of men were 5-9% lower because of infection" (Almond 2006). Moreover, historical and medical records suggest deterioration in health (e.g. chronic bronchitis, drowsiness, sleeping sickness) among some survivors after the Spanish flu in later life (see e.g. Collier, 1996; Ravenholt & Foege, 1982).

   Barro et al. (2020) attempt to draw implications from the Spanish Flu for the current COVID-19 crisis. They suggest that the 1918-20 pandemic could be regarded as a worst-case scenario. In this case, a death rate of 2% today would amount to 150 million deaths worldwide, and...