Global Productivity

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CHAPTER 3

GLOBAL PRODUCTIVITY

BOX 3.1 How do epidemics affect productivity? (continued) FIGURE B3.1.3 Impact of epidemics SARS, MERS, Ebola, and Zika left lasting scars on labor productivity with declines of about 4 percent after three years and larger effects on investment, whereas estimates suggest that TFP hardly declined. The impact of swine flu too was probably large, but impossible to assess because the epidemic overlapped with the 2008-09 global financial crisis.

A. Effects of epidemics on labor productivity and TFP Percent 3 2 1 0 -1 -2 -3 -4 -5 -6 -7 -8

B. Effects of epidemics on investment and output

Labor productivity Total factor productivity t

t+1

t+2

t+3

Percent 0 -2 -4 -6 -8 -10 -12 -14 Investment -16 -18 -20 t

Output

t+1

t+2

t+3

Sources: Emergency Events Database (EM-DAT); World Bank.

Note: Orange lines display the range of the estimates with 90th percentile significance. An episode dummy for a specific type of event is 1 if the event occurs at least once (≥1) in a country-year pair and 0 otherwise. EMDEs = emerging market and developing economies; MERS = Middle East respiratory syndrome; SARS = severe acute respiratory syndrome; TFP = total factor productivity.

A.B. Bars show the estimated impacts of the four most severe biological epidemics on output, labor productivity, TFP, and investment levels relative to unaffected EMDEs. The four epidemics considered are SARS (2002-03), MERS (2012), Ebola (2014-15), Zika (2015-16). Swine flu (2009), which coincided with the 2008-09 global financial crisis, is excluded to limit possible confounding effects. The sample includes 116 economies: 30 advanced economies and 86 EMDEs.

Conclusion The COVID-19 pandemic raises questions about its effects on productivity.

Pandemics and epidemics are rare events in comparison to climate disasters, but they have had adverse and persistent effects on productivity. Adverse impacts on productivity increase more than proportionately with the severity and duration of these types of disasters. Epidemics that have occurred since 2000 have lowered labor productivity by a cumulative 4 percent after three years, because of elevated uncertainty and mainly through their adverse effects on investment and the labor force.

The COVID-19 pandemic may have a significantly worse impact on productivity than most previous natural disasters for the following reasons: •

Global reach. The COVID-19 pandemic appears to have considerably broader reach—in terms of numbers of both countries and people affected— than other disasters since 1960. The increased integration of the global economy, through trade and financial linkages, will amplify the adverse impact of COVID-19.