The COVID-19 crisis is historically a unique shock that differs from any past economic crisis. While COVID-19 vaccines and drugs have been developed and diffused, no signs are in sight of an end to the COVID-19 pandemic, with new variants emerging. The pandemic will likely to stay with us in 2022.
The COVID-19 crisis features (1) tradeoffs between health and economic activities, (2) heterogeneity of impacts by sector and (3) high uncertainties. While restrictions on outings and mobility to suppress infections bring about a decline in economic activities at least over the short term, conventional economic stimulus measures lead to an increase in infections. While past great shocks including the oil shock and the Global Financial Crisis heavily affected manufacturers, the COVID-19 crisis exerted serious impacts on the services industry where person-to-person contacts are indispensable. The COVID-19 crisis also brought about unparalleled uncertainties to firms, households, and other economic agents.
Economists throughout the world have proactively tackled the new challenge. Economic papers handling the COVID-19 pandemic have increased progressively. Numerous academic journals have published special issues covering the pandemic. In Japan, the Japanese Economic Association has created a special website for COVID-19 research papers. Its Japanese Economic Review has published two special issues focusing on the pandemic.
RIETI for its part has focused on COVID-19 research under its fifth medium-term plan launched in April 2020. As of this writing, RIETI has published some 60 discussion papers on COVID-19, and about 20 papers have already been peer-reviewed and published or scheduled to be published in academic journals (Note 1). As real-time analysis and information that cannot be obtained from government statistics are required, researchers have used stock prices, point of sale data, location information from mobile terminals and other high-frequency data, as well as their originally designed surveys of businesses or individuals, for their studies. Wide-ranging analysis themes are roughly categorized into four groups – (1) factors and countermeasures for the COVID-19 infection spread and medical arrangements, (2) impacts on consumption and macroeconomy, (3) impacts on industries and firms, and (4) impacts on the labor market (see Figure 1).
RIETI studies regarding COVID-19
First, studies on the infectious disease itself include simulation model analyses that incorporate economic activities into epidemiology models (20-E-089, 21-E-004, 21-E-009) (Note 2). They analyzed the impacts of social distancing policies, mobility restrictions and vaccination on infections and economic activities. Some studies were based on original surveys of individuals to suggest effective measures for expanding vaccination (21-J-007, 21-J-023, 21-J-026, 21-P-017). The government referred to these studies in its policymaking process.
Second, studies regarding consumption and macroeconomy include a survey of households on the impacts on consumption from the infectious disease and shelter-in-place measures (20-P-020), an analysis of weekly consumption behavior changes using point of sale data (20-J-037) and an estimation of the impacts on consumption of cash stipend paid to all households in 2020 (21-E-043). They demonstrated that consumption changes during the COVID-19 spread included a decline in dining out and cosmetics consumption and an increase in stay-at-home consumption and that the marginal propensity to consume was low for the cash stipend. Recently, the impacts of vaccination on consumption behavior have begun to be analyzed (21-E-079).
Third, studies on the impacts on industries and firms account for the largest share of RIETI papers regarding COVID-19. As stock price data are useful for promptly finding the impacts of the shock on industries and firms, studies using those data have been conducted since the early stage of the pandemic (20-E-061, 20-E-068, 20-E-088). Studies that used original survey data to measure uncertainties facing firms (20-E-081, 21-E-042) indicated that uncertainties increased for firms that had trading relations with China in the early stage of the pandemic and that the COVID-19 crisis features a stronger uncertainty shock than the Global Financial Crises. Some studies (20-E-037, 21-E-001, 21-J-010, 21-E-014, 21-J-031) simulated the spillover of the shock or assessed the shock in an ex-post manner, analyzing the interregional or international spread of the shock through supply chains. While exerting serious negative impacts on accommodation, food services and passenger transportation sectors, the COVID-19 shock has brought about positive impacts on electrical machinery production, information services and online retail sectors that have benefited from stay-at-home demand. A study simulated firm exits under the COVID-19 pandemic (20-E-065), indicating that exits differ by sector and region and that massive subsidies are required to suppress enterprise exits. Some surveys (21-P-006, 21-J-029) clarified the characteristics of firms that took advantage of government support, based on original business surveys. As the market's firm selection mechanism must be utilized for post-pandemic economic growth, these studies provide implications for desirable future policies.
Fourth, there are many studies dealing with the impacts on the labor market. Some studies (20-E-039, 20-E-064) analyzed the types of workers who were seriously affected by the COVID-19 pandemic, indicating that the COVID-19 crisis greatly affected non-regular workers, small business owners and low-income people, contributing to widening economic disparities. An attention-attracting change in the labor market under the COVID-19 crisis is the rapid spread of working from home, which has been covered by many studies (20-E-073, 21-E-002, 21-E-024, 21-E-063, 21-E-078). They found that the spread of working from home mitigated the negative impacts of the COVID-19 shock on employment and business performances, that the feasibility of working from home differs by business or job category, contributing to widening disparities in the labor market, and that the average productivity of working from home was lower than that of working at the workplace.
Prospects and challenges
There are numerous ongoing studies, including a joint study with the Kyoto University Graduate School of Medicine and France's Institut Pasteur, which includes antibody tests and combines the social and natural sciences. The results are expected to be promising. From the viewpoint of evidence-based policymaking, a high-priority future challenge is the ex-post assessment of various personal and business support policies accompanied by huge funding under the COVID-19 crisis. The effects of the special cash stipend have already been analyzed as noted above, but any empirical analysis has been lagging on the effects or side-effects of cash flow support by government financial institutions, grants to small and medium enterprises, employment adjustment subsidies, the GoTo Travel tourism promotion campaign and other policies. From the viewpoint of medium to long-term economic growth, an important research challenge is the clarification of the impacts that the wide implementation of temporary school closures and online classes would exert on human capital development.
RIETI plans to proactively promote studies regarding the COVID-19 pandemic in 2022 while watching post-COVID structural economic changes.
^ In addition, published books include Kobayashi, Keiichiro and Morikawa, Masayuki (2020), Economics of COVID-19 Crisis (Nippon Hyoron sha Co.) and Miyagawa, Tsutomu, Economics of COVID-19 Shock (Chuokeizai-sha Holdings, Inc.)
^ The numbers represent RIETI Discussion Paper numbers (the same applies hereinafter).