COVID-19 Crisis: The Impact of Trade and Economic Contagion on Developing Countries

18 Pages Posted: 12 Oct 2020

Date Written: October 11, 2020

Abstract

The ongoing novel coronavirus (COVID-19) pandemic poses an unprecedented challenge to public health on a global scale. As governments are scrambling to safeguard peoples’ health, the contagion has fast extended to the economic sphere, creating an international economic crisis, unique in the scale and characteristics not seen since the Great Depression. COVID-19, unleashed simultaneous global demand and supply shocks, spanning across all nodes and centers of economic activity across the world, as businesses shut down and consumers were confined to contain the contagion. With the global economy interconnected more than ever, the rate of cross-economic contagion is likely to take an unparalleled economic toll. Despite massive stimulus packages being crafted as economic lifelines in some developed economies, global income this year is likely to shrink dramatically with significant adverse transmission effects to developing and emerging markets. The vulnerability of developing countries to the pandemic is particularly acute, with limited capacity to weather the immediate health crisis and expected economic fallout due to high pre-existing poverty rates, larger informal sectors, shallower financial markets, and less fiscal space to broaden the social safety net or to stimulate their domestic economies. A protracted global depression threatens deep disruptive and lasting structural impact to their economies. The resulting risks, uncertainties, and threats to economic and social stability pose a threat to security, particularly in countries already suffering pre-pandemic.

Keywords: F17, F43, I15, C68

JEL Classification: COVID-19, Infectious Disease, Economic Growth of Open Economies, International Trade

Suggested Citation

Pitigala, Nihal, COVID-19 Crisis: The Impact of Trade and Economic Contagion on Developing Countries (October 11, 2020). Available at SSRN: https://ssrn.com/abstract=3709524 or http://dx.doi.org/10.2139/ssrn.3709524

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