Planning for Crisis Resilience
Large international disparities in the economic cost of the COVID-19 crisis should surprise no one. The question is what can be done to ensure that economies are able to bounce back as quickly as possible.
CAMBRIDGE – When you throw a tennis ball to the ground, it bounces back up. But if you throw a wine glass, it shatters. Many countries’ economies are in free fall. Will they bounce back or shatter? What can be done to assure a strong recovery?
The economic consequences of the COVID-19 pandemic may not be obvious, as ongoing research with Sebastián Bustos on previous crises suggests. In the 2008 global financial crisis, among the least affected countries were financial centers such as the United States and Switzerland, while the most affected were Greece, the Baltic countries, Italy, Ireland, Spain and Portugal, where forgone output was 10-100 times larger.
Likewise, following the collapse of the Soviet Union, Central Asian Tajikistan and European Moldova and Ukraine lost two-thirds of their GDP at the trough, whereas Tajikistan’s neighbor, Uzbekistan, as well as Estonia and Belarus (adjacent to Ukraine) lost less than one-third. During the Latin American debt crisis of the early 1980s, the worst-affected countries were low-income Bolivia but also upper middle-income Uruguay and Chile, while the least affected were Mexico (where the crisis began), Panama, Honduras, and Paraguay. And following the Arab Spring of 2011, GDP in Tunisia (where it all started) fell by less than 2% at the trough while Egypt did not even experience a recession. By contrast, Libya, Syria, and Yemen suffered major collapses.