Can Social Distancing Work in Low Income Countries?
25 Pages Posted: 27 May 2020
Date Written: May 27, 2020
I investigate how the effect of COVID-19 might differ across countries, with emphasis on their dependence on income. In particular, I consider two sources of dierences. First, in low income countries there are less jobs that can be performed from home, and second, lower income households cannot afford to relinquish income for as long as richer ones. To study this, I extend the framework in Eichenbaum et al. (2020) with a subsistence level of consumption and heterogenous work-at-home possibilities. Subsistence consumption reduces the elasticity of hours worked to the pandemic in low income countries, and working from home milds the recession down without risking contagion. My findings suggest that the epidemiology crisis is worse in low income countries, with higher infection and death rates, while the economic crisis is milder. More precisely, an increase in income per capita of 1% increases infections by almost 300 people per million, the number of deaths by 4 per million, and the number of transmissions per person infected by 0.09%. Almost half of the cross country differences due to the potential to work from home. On the other hand, a 1% increase in income reduces the fall of consumption relative to steady state by 0.03%. Government mandates to stay at home are less eective in low income countries: while they reduce the number of infected by 5.4% in U.S., the reduction in Mexico is of only 3.7%. I argue that a better policy would consist of extending cheap loans to these countries: the optimal loan would reduce the number of infected in U.S. by 8.4%, and in Mexico by 11.7%. In addition, loans to poor nations are cheaper: in the U.S., the optimal loan is worth $4,700 per person, while in Mexico it is $909.
Keywords: COVID-19, Coronavirus, Social Distancing, Low income countries, Inequality.
JEL Classification: E1, H0, I1
Suggested Citation: Suggested Citation