Covid-19 and Emerging Markets: A Sir Model, Demand Shocks and Capital Flows

76 Pages Posted: 18 Aug 2020 Last revised: 11 Feb 2021

See all articles by Ṣebnem Kalemli-Özcan

Ṣebnem Kalemli-Özcan

University of Maryland

Selva Demiralp

Koc University - Department of Economics

Sevcan Yesiltas

Koc University

Date Written: January 2021


We quantify the macroeconomic effects of COVID-19 for emerging markets using a framework that combines a SIR model with data on international and intersectoral linkages for a small open economy. We use this framework to estimate the sectoral COVID costs for Turkey. Domestic infection rates feed directly into both sectoral supply and sectoral demand shocks. Sectoral demand shocks additionally capture foreign infection rates through external demand. Infection rates at home and abroad can change differentially with different lockdown policies and social distancing measures. We use real-time credit card purchases to pin down the magnitude of these demand shocks. Our results show that the optimal policy, which yields the lowest economic cost and saves the maximum number of lives, can be achieved under an early full lockdown of 39 days at the onset of the pandemic. Economic costs are much larger for an open economy because of the low external demand that amplifies the costs through international input-output linkages. We document a strong relationship between sectoral costs of COVID-19 and net capital flows into that sector, implying a tight connection between domestic fiscal space and external finance in emerging markets.

JEL Classification: C51, E61, F00

Suggested Citation

Kalemli-Özcan, Ṣebnem and Demiralp, Selva and Yesiltas, Sevcan, Covid-19 and Emerging Markets: A Sir Model, Demand Shocks and Capital Flows (January 2021). CEPR Discussion Paper No. DP15154, Available at SSRN:

Ṣebnem Kalemli-Özcan (Contact Author)

University of Maryland ( email )

College Park
College Park, MD 20742
United States

Selva Demiralp

Koc University - Department of Economics ( email )

Rumeli Feneri Yolu
Sariyer 80910 Istanbul
+212 338 1842 (Phone)

Sevcan Yesiltas

Koc University

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