Initial Output Losses from the Covid-19 Pandemic: Robust Determinants

IMF Working Papers, January 29, 2021

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Canonical URL: Initial Output Losses from the Covid-19 Pandemic: Robust Determinants

Objective: Provide a first analysis of robust determinants of observed initial output losses using model-averaging techniques—Weighted Average Least Squares (WALS) and Bayesian Model Averaging (BMA).
Core finding: Countries that experienced larger initial output losses during the COVID-19 pandemic tend to have the following characteristics:
- lower GDP per capita
- more stringent containment measures
- higher deaths per capita
- higher tourism dependence
- more liberalized financial markets
- higher pre-crisis growth
- lower fiscal stimulus
- higher ethnic and religious fractionalization
- more democratic regimes
Interpretation regarding GDP per capita: Lower resilience of poorer countries reflects the higher economic costs of containment measures and deaths in such countries and less effective fiscal and monetary policy stimulus.

Techniques used:
- Weighted Average Least Squares (WALS)
- Bayesian Model Averaging (BMA)
Scope: Analysis of determinants of observed initial output losses across countries during the COVID-19 pandemic.

Fiscal and monetary policy effectiveness: Lower fiscal stimulus is associated with larger initial output losses, implying policy response strength matters for resilience.
Vulnerabilities: Higher tourism dependence and more liberalized financial markets are associated with larger losses, indicating exposure channels to pandemic shocks.
Socio-political factors: Higher ethnic and religious fractionalization and more democratic regimes are linked to larger initial output losses, suggesting institutional and social dimensions affect outcomes.
Health and containment trade-offs: More stringent containment measures and higher deaths per capita are associated with larger output losses, highlighting trade-offs between public-health measures and short-term economic performance.
Distributional implication: Poorer countries (lower GDP per capita) are less resilient due to both higher costs of containment/deaths and less effective policy responses.