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The Great Lockdown: Dissecting the Economic Effects

November 2, 2020

Francesco Grigoli, Economist, World Economic Studies Division of the IMF's Research Department; Adjunct Professor, Georgetown University
Andrea Presbitero, Vera and Stefano Zamagni Professor; Associate Professor of Economics, Johns Hopkins SAIS
Stringent, short-lived, and early lockdowns are effective tools to contain infections, which in turn reduce voluntary social distancing paving the way for future economic recovery. That, in short, is the conclusion that IMF researchers have drawn from the lockdowns introduced at the beginning of the pandemic. In its recently published semiannual World Economic Outlook, the IMF assessed the impact of lockdowns on economic activity during the first seven months of the pandemic using a large set of countries, providing a novel perspective on the costs and benefits associated with these measures.
IMF economist and adjunct professor at Georgetown, Dr. Francesco Grigoli joined the Bologna Institute for Policy Research to lay out the IMF‘s findings on the economic impact of the lockdowns used to fight the spread of COVID-19. An economist by training, Dr. Grigoli has spent much of his professional career at the IMF and has published extensively on macroeconomics and international economics.
Guiding his audience through the chapter, Dr. Grigoli showed that the lockdowns had a significant, negative impact on national economic activity. A key proxy for the contraction in economic activity is the collapse of social mobility, which dropped by about 25% in response to a full lockdown a week after it was imposed. Importantly however, the IMF estimated that voluntary social distancing contributed in a similar proportion to the reduction in mobility, concluding that prematurely ending lockdowns is unlikely to jumpstart the economy. Another piece of evidence on the role of voluntary social distancing is the early decline in labor demand in contact-intensive sectors, such as hospitality, personal care, and food.
While national lockdowns applied to everyone, the economic pain has not been felt equally, Dr. Grigoli cautioned. Lockdowns had the most negative impact on those segments of the population that were already vulnerable. Women and young people suffered the largest declines in mobility, likely reflecting the larger role in childcare of the former and the less stable jobs and income of the latter.
All of these challenges have to be weighed against the health gains that lockdowns bring about. Lockdowns, the researchers found, reduce the cumulative number of infections by about 40 percent within 30 days. The findings also suggest that lockdowns appear to entail decreasing marginal economic costs but increasing marginal health benefits. As a result, the IMF researchers recommended that imposing stringent, short-lived, lockdowns early in the pandemic could actually pave the way for future economic recovery. Infections, in fact, would be contained early on so that people would feel more comfortable resuming normal economic life.

Listen to the full audio recording of the discussion.