Once the great lockdown is lifted: Post COVID-19 options for the economy

Ritzen, Jozef M. Working Paper Once the great lockdown is lifted: Post COVID-19 options for the economy UNU-MERIT Working Papers, No. 2020-057 Provided in Cooperation with: Maastricht Economic and Social Research Institute on Innovation and Technology (UNU-MERIT), United Nations University (UNU) Suggested Citation: Ritzen, Jozef M. (2020) : Once the great lockdown is lifted: Post COVID-19 options for the economy, UNU-MERIT Working Papers, No. 2020-057, United Nations University (UNU), Maastricht Economic and Social Research Institute on Innovation and Technology (UNU-MERIT), Maastricht This Version is available at: https://hdl.handle.net/10419/326759 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by-nc-sa/4.0/ #2020-057 Oncethegreatlockdownislifted: PostCOVID‐19optionsfortheeconomy JozefM.Ritzen Published18December2020 MaastrichtEconomicandsocialResearchinstituteonInnovationandTechnology(UNU‐MERIT) email:[email protected]|website:http://www.merit.unu.edu Boschstraat24,6211AXMaastricht,TheNetherlands Tel:(31)(43)3884400 UNU-MERIT Working Papers ISSN 1871-9872 Maastricht Economic and social Research Institute on Innovation and Technology UNU-MERIT UNU-MERIT Working Papers intend to disseminate preliminary results of research carried out at UNU-MERIT to stimulate discussion on the issues raised. COVID‐19economicimpactandoptions  search    OncetheGreatLockdownisLifted;PostCOVID‐19 OptionsfortheEconomy JozefM.Ritzen,MaastrichtUniversity,UNU‐Merit  December2020 Abstract In2021lockdownsstillwillbenecessarytokeepCOVID‐19incheckworld‐wide.Vaccinationmight bringsufficientcoveragebytheendof2021forsomecountries.Prioritiesinthere‐emergenceof economiesshouldbeforsustainability,health,education,fullemploymentandsocialcohesionto preservelong‐termwelfare. PressuresonGovernmentbudgetsaregoingtoriseinviewoftheunprecedentedhighpublicdebtto GDPratioworld‐wide.Increasedtaxationofwealthandofthetop10%‐income‐groupisasuperior strategycomparedtoretrenchment(budgetcutsinhealth,educationandsocialexpenditures). Internationalcooperationistoppriority.Thisappliestohealth,butalsotoeconomicandmonetary policy:itcanlifteconomicgrowthintheG20countriesovertheshortandlongrunbyatleastone third. Theresumptionoftradeshouldbeguidedbyrewardingtheachievementofsocialgoalsandrealizing sustainability.Inthiswaythelevelplayingfieldisrestoredforthosecountrieswhichwantto contributetoasustainableworldandtocooperation. Internationaltaxationrulesforprofitsshouldpreventtaxhavenstomakethisanegativesumgame. Thiswouldgivedevelopingcountriessomeofthenecessarybreathingspacetore‐emergefromthe COVID‐19crisis.  COVID‐19economicimpactandoptions  Keywords:COVID‐19,employment,economicdevelopment,environmentalsustainability,social cohesioneducation,health,monetarypolicy,sovereignlong‐terminterestrates,conditionalities, taxation,stockmarket  JELClassification:I00,J20,H63,H74,O38,O40,O43,O44,E62,E43,Q58,F18,F23,O52R30,I25,F30, G15,H25,H87 GratefulacknowledgementofcommentsonanearlierversionbyLucSoete,TomvanVeenandKozhan Wahid.  COVID‐19economicimpactandoptions  1.Intro:devastationandre‐emergence...................................................................................................4 2.COVID‐19impact:health,education,employment,incomeanddebt................................................6 2.1.TheCOVID‐19supplyshock:realandfinancial..............................................................................6 2.2Income......................................................................................................................................8 2.3.Employment...................................................................................................................................9 2.3Healthandeducation....................................................................................................................10 2.4Incomedistributionandpoverty..................................................................................................11 2.5Privateandpublicdebt.................................................................................................................13 2.6Monetarypolicy............................................................................................................................14 3.COVID‐19impact:international:tradeandcapitalflows,andinequalitybetweennations..................16 3.1Inequalitybetweennations..........................................................................................................16 3.2Debtinternational.........................................................................................................................16 3.3Trade.............................................................................................................................................16 3.4Naturalresources..........................................................................................................................17 3.5.Thestockmarket..........................................................................................................................17 4.Options2021andbeyond:realigningresilienceinnationaleconomieswithsustainability.............19 5.Options:internationalcooperation....................................................................................................23 6Conclusions.........................................................................................................................................25 References:.........................................................................................................................................28   COVID‐19economicimpactandoptions  1. Intro:devastationandre‐emergence  Wemayrisefromthebunkersofthepartial,intelligentorfulllockdownafterthewavesofCOVID‐19 bombardmentsandseeaworldwithwoundsandscars.Physicallythetreesarethere,thebuildingsare standing,theroadsstillpaved,butthesoulofoursocialandeconomiccontactshasbeenseverely affected.PrettymuchthewholeworldwasstuckwithCOVID‐19.Hencethispaperextendstoricherand poorercountriesalike. Childrenhavelearnedless,anxietyandstresshaveincreasedwithfewerchancesforcoping.Many youngstershavehadadreadfultimeandquiteafewarelikelytobescarredperhapsevenforlifedueto theCOVID‐19bombardment.Theextra‐mortalityinparticularamongtheelderlyandthesickhasfar exceededthatofpreviousflu‐epidemics.Hospitalsarerelievedtoseethatthetimeofanoverflowof their(IC)facilitiesisover,butasawholetheyareexhaustedfromtheonslaughtoftheepidemic. TheCOVID‐19epidemicisahealthcrisis.Governmentssoughttocontainthebeastbylimitingsocial contact,to“lock‐downs”.Intheprocesstheeconomysuffered:customerscouldnolongerbuyasthey wishedandproductscouldnotbetransportedasneeded.Thishasmadethe“GreatLockdown”the biggesteconomicshocksincetheGreatDepression.TheIMFestimateisthatsomewhatlessthana whopping20%(12TrillionUSDollars)willbelostintheglobaleconomyover2020‐21. Economicallythe“GreatLockdown”causedinthefirstinstancea“supplyshock”,ascostumerssimply couldnotaccessthesupplyofservices(transport/mobility,entertainment,restaurantsandbars, culture,tourism)orwhenthefinalsupplyofgoodswasdelayedbecauseofrestrictionsontransportof constituentpartsoffinalproducts.Governmentsintervenedandarestillinterveningmassivelyto precludethebacklashofthesupplyshockonconsumerandfirmdemand. Whenfirmsgobrokeasaresultofasupplyshockandtheirworkends,workerswillhavelessincometo spendintheeconomyandthesupplyshockmayresultinadecreaseindemand,sendingtheeconomy intoadownwardspiral. Asineverycrisistheburdenofthelosswasbornebythenarrowestshoulders:thelowestpercentilesof income.Thisisthefirstpartofpaper(insection2).Mostofthisisbasedonmacro‐figuresandmicro‐ simulationsoftheimpactofthecrisisonindividuals.Thispartdrawsmostlyonpaperswhichusedata fortheperiodofthefirstwave,February‐May2020)withoccasionalupdatesinthesecondhalfof2020. Theshockwasworldwideyetwithsubstantialdifferencesbetweencountries:theOECDcountriesand Chinasufferedlessthandevelopingcountries.Internationaltradewasaffectedwithadecreaseinthe exportofnaturalresourcesanddecreasingcommodityprices:theoilpricefelltoUS$41abarrel.Capital flowsdecreased.Remittances,thetransfersofmigrantsworkinginrichercountriestotheircountryof originandamajorsourceofrevenueformanydevelopingcountries,decreased.Theconvergence betweenricherandpoorercountriesoftheperiod2000‐2010hadalreadycometoastandstillinthe period2010‐2020butnowchangestoasharpdivergence(section3).Theflowofwell‐educatedpeople frommiddleincomecountriestoOECDcountriesisincreasing,aspeopleseebetteropportunitiesthere. COVID‐19economicimpactandoptions  RemarkablythestockmarketafteraninitialhesitationinMarch/April2020isflourishingasneverbefore indicatingasurprisingoptimismofinvestors:theyreckononhighprofitsinthefutureorona continuationoflowinterestratesdespiteheavyGovernmentborrowing. ByJanuary2021avaccineisaroundthecorner,butitislikelytotakemorethanayearbeforesufficient coverageisachievedtocompletelyliftallsocialrestrictions(includingthesocialdistancing)inthe advancedeconomiesandsomeyears(somesayuntil2025)inemergingeconomiesanddeveloping countries. Wehopeandliketoseesocietiesre‐emergeformtheCOVID‐19crisis,inasimilarwayasaftertheGreat Depression.AtthattimeUSpresidentFranklinDRooseveltstatedthat“heedlessself‐interestis...bad economicsandfreedomfromwantwasoneoffourgoalsshapingpolicy.Ideasthatwerecontroversiala decadeearlier—thateconomieslefttothemselvescanwreakhavoconpeople’slivesandthat governmentscanadvancethepublicgood—becamecommonplace”Inthemeantimemanysmalland mediumscalebusinessesandservicesinsectorswhichwerealreadyatrisk(likeretail)arebroke,adding tothealreadyhighunemploymentasaresultofthelockdownsthatwreakedhavocintourism,air transportandthefoodanddrinksector. Inthisveincountriescanin2021slowlyrestarttheireconomiestorecouplostincomeonapacewhich dependsontheabilityoftheGovernmenttoraisemoneyforthesupportoftheeconomictransition (eitherthroughborrowingorthroughtaxation).OECDcountriesandChinaareinanexcellentpositionto doso,whiledevelopingcountrieshavetorelyontheIMFandtheWorldBankforsupport. Countriesimmediateconcernistocreateincentivesforeconomic,sustainablegrowthandtorecoupthe lossesinhealthandineducation.Thefirstinclinationcouldbetolookforquickwins,eveniftheygo againstlongrunsustainability.Hopefullytheleadershipwillrecognizethatthisisnottherightroute. Therightrouteistoreenergizethehealthsystemwhichsufferedfromthecrisis,tocreateacatchupfor education,toresorttofullemploymentpolicies(withsomehesitationassuchpolicieshavebeen bannedintheperiodofultra‐capitalism)andtospurinnovation.Economicrestructuringwillbe necessaryinthecountrieswhichrelyforalargepartoftheirincomeonoilexports. Governmentswillhavetoreflectonwaystorepaythedebtsincurredforfightingtheeconomicfall‐out ofthecrisis.Therearebuttwooptions:budgetcuttingwhichwouldputthecarbeforetheeconomic horseorhighertaxation.Wearguethatincreasedtaxationofwealthandofthetop10%‐incomeswill actuallybothhelptoreducethebudgetarysqueezeaswellbenefitsocialcohesioninthecountry leadingtomoretrustinGovernment(section4). TheCOVID‐19epidemichasmadeitcrystalclearthatinternationalcooperationinhealthistoppriority: competitionisanegativesumgame.Thesameappliestoeconomicandmonetarypolicy:calculations showthatincreasedcooperationbetweenG20countriescanlifteconomicgrowthovertheshortand longrunbyatleastonethird.Theresumptionoftradeshouldalsobeundertheclearguidancethat cooperationisrewardedinachievingsocialgoalsandrealizingsustainabilityinthefaceoftheclimate crisis(Attenborough,2020).Inthiswaythelevelplayingfieldisrestoredforthosecountriesthatwantto contributetoasustainableworldandtocooperation.Internationaltaxationrulesforprofitsshould COVID‐19economicimpactandoptions  preventtaxhavenstomakethisanegativesumgame.Theywouldgivedevelopingcountriessomeof thenecessarybreathingspacetore‐emergefromtheCOVID‐19crisis(section5) Weareacutelyawarethatpolicyisnotsomechoicedeterminedbyrationalchoicebasedonevidence andonvaluepropositions,butratherchoicebasedonacomplexsystem,inwhichtheprimaryforcesof “culture”dominateeconomicandsociallong‐termreasoning.Thatiswhywebring“socialcohesion”to thetableofthisoverviewasameanstosupportGovernmentbroadlyinitsre‐emergencepolicies. Inthefollowingwedistinguishfor2020betweenthefirststageofthecrisis(early2020‐mid2020)with ratherstringentlockdownmeasuresinmostcountriesandasecondstage(mid2020‐tillJanuary1, 2021),wheremanycountriestrytoopenupasmuchaspossible,butarestillunderseriouslockdown constraints.Thesections4and5considerthepolicy‐optionsofyears2021andbeyond.Thispaper buildsfurtheronanearlyJune2020assessmentoftheimpactoftheCOVID‐19crisisforEurope(Ritzen, 2020).Thelastsectionpresentsourconclusions.  2. COVID‐19impact:health,education,employment,incomeanddebt 2.1.TheCOVID‐19supplyshock:realandfinancial  Inthefirststage(early2020)oftheCOVID‐19epidemicthelockdownscausedseriousdisruptionsinthe supplyofgoodsandservices.Consumerscouldn’taccessforexample,airtravel,tourism,barsand restaurants,entertainmentandconsumergoodsinretailshops.Firmscouldnotaccesstotheirsuppliers ofintermediategoods,requiredfortheirownproductioninthe“justintime”modewherestocksof intermediateproductsarekeptassmallaspossible.Thedangerwasthatinasecondstagethissupply disruptionwouldturnintoadecreaseindemand:firmslosebusinessandhavetoshedworkers. Workershavetoacceptlowerwagesoralowerincomewhentheybecomeunemployed.Theyhaveless tospend.Nowthesuppliersarenothurtbythelockdownmeasuresbutbylowerdemand.Beforeyou knowitweareina“supply‐demanddoomloop”,adownwardspiral(Fornaro,2020). Thisisthebasiceconomicthinkingbehindtheimpactofthe“GreatLockdown”ontheeconomy,asfor examplecapturedintheanalysesofthetwomajorinternationalorganizations(WorldBankandIMF) (Utz,2020)(ErikssonvonAllmen,2020).Themacro‐financialchannelsandspilloversthatcouldamplify thenegativeeconomicandfinancialimpactoftheCOVID‐19‐19outbreakaredepictedinFigure1.In yellowisthethreatofthe“doomloop”orinthejargon:“theamplificationthroughstructuralmacro‐ financiallinkages”. Buttherearetwoothermajorlinkswiththerealeconomyofdemandandsupplyofgoodsandservices. Theseareofthemonetarytype,namelytheimpactoncreditandthroughfinancialmarkets.Itislikely COVID‐19economicimpactandoptions  2.5Privateandpublicdebt TheinterventionsofGovernmentswithincomesupportandfinancialsupportforfirmshassoftenedthe economicblowofCOVID‐19lockdownsonemploymentandincome.YettheyhavebroughtGovernment financeinadifficultposition.BeforetheCOVID‐19crisisthelevelsofpublicandprivatedebtwere alreadyhistoricallyveryhigh.Butthecrisiswillcertainlybringthemtothehighestlevelseverasshown inFigure3.  Figure3DebttoGDPratio’s1880‐2020 TheIMFcalculatesthatprivatedebt(nonfinancial)amountedbeforetheCOVID‐19crisistoUS$152 trillion,or225percentofworldGDP,whilepublicdebthadincreasedby15percentagepointsofGDP between2000and2015(Okamoto,2020).Mediandebtin2021isnowprojectedtobeupbyabout17 COVID‐19economicimpactandoptions  percentofGDPinadvancedeconomies;12percentinemergingeconomies;and8percentinlow‐ incomecountries.USdebthasreachedaheightofUS$27trillion(withaGDPof25trillion).Thatisan alarmingrise.Withfewerresourcesandlesscapacity,low‐Incomecountriesareparticularlyvulnerable: abouthalfofthemwerealreadyin,orathighriskof,debtdistresspriortothecrisisonslaught. Thereissubstantialdiscussiononthelevelofdebtthatcountriescanincuriftheirlevelofeconomic growthishigherthatthelevelofinterestforthatcountry(deVette,2020).Ifexpectedeconomicgrowth ishigherthantheinterestrate,thenborrowingmoneyislike"afreelunch":itcaneasilyberepaid.Itis onthisnotionthatquiteaviewOECDcountrieshaddecidedbeforetheonslaughtoftheCOVID‐19crisis toborrowsubstantialfundsfornationalinvestmentfunds.Thenotionisthattherateofreturntothese investmentsislikelytobehigherthantheinterestrateforborrowings. Nowthepressingquestionishowinternationalinterestratesaregoingtodevelopinviewofthe tremendousincreasesinborrowing.Thebasicnotionisthatifthedemandformoneyincreases,then thepriceformoney(theinterestrate)wouldgoup.Thiswouldinvitethepartieswhoprovidemoneyto savemoreandofferitforpublicandprivatedebt.Inotherwords:theinterestrateislikelytogoup throughincreasedGovernmentborrowing.Yet,oneshouldrealizethattheOECDeconomiesare characterizedby"secularstagnation"(Summers,2019)whichhaveledtodecreasinginterestrates. However,theCOVID‐19crisishasintensifiedthisstagnation(drivingdowninterestrates)(Goy,2020). ThejuryisstilloutontheneteffectsofincreasedGovernmentdebtontheinterestrate.Theprevious peak(seeFigure3indebttoGDP‐ratio’swasjustaftertheSecondWorldWar.Interestrateswerethen ataverylowrate.However,interestrateswereatanall‐timehighatthetimeofthehighdebttoGDP ratio’saftertheGreatDepression. 2.6Monetarypolicy TheUSandtheEUtheCentralBankshave–sincetheLehmanBrotherscrisisof2008‐engagedinbuying upsubstantialamountsofprivateandpublicdebtasameanstokeeptheeconomiesfromfallinginto thedeflationtrapwithdemandsupplyloopdepictedearlier.Theearlierfearsforinflationandariseof interestrateswerebeliedaspredictedbySchooloftheModernTheorist(Kelton,2020).Debtmaynot bemuchofaproblemifitisincurredfor“investmentsintheeconomy”astheoldKeynesianthinking wouldhaveit.Evendebt,financedthroughmoneycreationdoesnothavetobeaproblemasthehuge amountsofmoneycreatedto“buyupprivateandpublicdebt”afterthefinancialcrisisshowed.The earlyexperiencewithdebtbuy‐upprogramsinJapaninthe1990’sshowedthatbuy‐upprograms indeedcanthwartdeflationarypressures. AlsowiththeadventoftheCOVID‐19crisistheCentralBanksoftheUSandEuropehavesteppedin.This wasinEuropedebatedasapossible“HamiltonianMoment”.ThereferenceofcourseistoAmerica’s firstTreasurySecretary,AlexanderHamilton,whoconsolidatedthewardebtofthethirteencolonies withtheissuanceofcommondebt.GermanFinanceMinisterOlafScholzdescribedthe€750billion reconstructionpackage(of2020)withahistoricalreferencetotheformerAmericanTreasurysecretary. COVID‐19economicimpactandoptions  IntheUSthe“monetizationofUSdebt”orthe“quantitativeeasingofdebt”(meaningtheissuanceof newmoneyfordebt1)hashadalongerhistory.Duringthefinancialcrisisthe“Fed”(USCentralBank) startedtobuyupprivateandpublicdebt(Amadeo,2020).Bythestartof2015theFedendedupwith roughlyUS$4.5trilliononitsbalancesheet.InMarch2020theFedannouncedthatitwillbuyupsome US$1.25trillionofdebt.TheEuropeanCentralBankhasrampedupitspandemictrillionEurosinJune 2020.bond‐buyingtoEuro1.35trillionalsoinadditiontoearlierbuy‐upprogramsfromtheeraofthe financialcrisis. Thebuyupprogramsprovideconfidencetofinancialmarketsthattheirmoneyusedtofunddebtare safe,sothatinterestratescanbelow.ThiswasinparticularimportantinEuropeforItalyandSpain.In debeginningoftheCOVID‐19theirGovernmentinterestratewentup.WhentheECBmadeitclearwith thebuy‐upprogramthattheseborrowingsaresecure,theinterestratescamedownagain. Foreconomiststhiswasuncharteredterritory.Indeed,interestwentdownatfirstinstance,butatthe sametimethemoneysupplywentup,potentiallygivingrisetoinflationandinturnhigherinterest rates,withthepossibilityofaninterest‐pricespiral.Fortunatelythisdidnotoccurduringthebuyup programsduringthefinancialcrisisas–istheexplanation‐“secularstagnation”:theriseofsavings resultingfromtheageingofthepopulation(Summers,2019). OnceagaintheuncharteredterritoryisthatthecombinationoftheriseinGovernment(andprivate debt)togetherwiththehugesizeof“monetizing”debtisnotacertainrecipeforanincreaseininterest ratesworld‐wide.Tobesure:financialmarkets(andtheanalystswhichadviseinvestors)donotbelieve thatthisisthecaseandstillcountthatstocksgiveabetterreturnthaninvestmentsincountrydebt (section2.6). Monetizingdebtisreservedforcountrieswithastrongfinancialstandingandasufficientlylargesize. Thislimitsmonetizationasapolicyoptionformostcountriesintheworld.Notethatmonetarypolicyin mostcountriesisnotpartofGovernmentpolicy,butisindependent. CentralBankshavebecomeawarethatmonetarypolicydoesnotonlyaffectpricestabilityand economicgrowth,butalsothedistributionofincome(Jakob,2020).Sinceincomedistributionstandsso centrallyinrelationtosocialcohesion,whichinturnhasapositiveeffectongrowth,wemayexpect fromCentralBankstotakeincomedistributionmoreintoaccount. 2.7 Innovation TheCOVID‐19globallockdowntriggeredanunprecedentedexperiment.Millionsofprofessionalshadto dofromhomewhattheyusedtodoinofficesusingZOOM,Teamsoranyofthemanyothermeansfor teleconferencing.Teacherstaughtonline.Inoneschool‐districtintheNetherland80%oftheteachers becameabletoworkwithICTforteaching(upfromsome10‐15%).Teleworkingwaspromotedtoviable long‐termsolutionfromtemporaryfixorprecariousfreelancerarrangement(Adriano,2020).  1TheCentralBanksbuyGovernmentor–inEurope‐privatedebt.Theydonothavetoprintmoney,butgivecredit totheCommercialBanksortheGovernments,reducingthedebtpositionoftheseparties,andallowingthemin thisway COVID‐19economicimpactandoptions  Teleworkingwillstaywithuslongafterthecrisis,reducingthecostsofmobilitytofirmsandtothe public(forGovernmentservices).Herethesubstantialdifferencesbetweenricherandpoorercountries playalsoout.Inpoorercountriesthemeansforusingtelecommunicationforschoolsorforworkwere onlyavailableonalimitedscale.InternationalLabourOrganizationresearchersestimatethatlessthan oneinfiveworkersworldwideareinoccupationsandliveincountrieswiththeinfrastructureneededfor effectiveworkingfromhome.Thataveragedisguiseswidedisparities.InNorthAmericaandWestern Europe,theproportionis1in3;insub‐SaharanAfricaitis1in17. 3.COVID‐19impact:international:tradeandcapitalflows,and inequalitybetweennations 3.1Inequalitybetweennations Thepoorestcountries–withlimitedresourcesandconstrainedcapacity–arehithardest:growthin low‐incomenationswillbeatastandstillthisyear,comparedwith5%lastyear. Withoutnecessaryaction,thisgroupofabout70countries,representingmorethan1billionpeople, facesunprecedentedhumanandeconomicdevastation.Thedecades‐longdecliningtrendinglobal povertyisbeingpushedintoreverse,withasmanyas90millionadditionalpeoplefallingintoextreme poverty,mostlyinsub‐SaharanAfricaandsouthAsia. Justthismonth,theUNwarnedoffamine.Thereisalsothefearthatthepandemicwillsetbackhealth progressfordecadesaswellasreverseprogressonothercrucialfrontssuchasgenderequality. 3.2Debtinternational Justaspeoplewithweakimmunesystemsaremorevulnerabletothevirus,solow‐incomecountries withweakfundamentalsaremorepronetoitseconomiceffects.Morethanhalfofthesecountrieswere alreadyathighriskof–oractuallyin–debtdistressbeforethecrisisbegan. Thepandemichasexacerbatedthiswithapoisonouscocktailofexternalshocks:sharplyfallingexports andcommodityprices(see:section3.4),collapsingtrade,evaporatingtourismandlesscapitalinflows. Remittances,whicharethemainsourceofincomeformanypoorfamilies,havebeenhithard–by almost20%incountriessuchasBangladesh(IMF,2020). Therehavebeensignificantdevelopmentsinsovereigndebtrestructuringinvolvingprivate‐sector creditorssincetheIMF’slaststocktakingin2014.Whilethecurrentcontractualapproachhasbeen largelyeffectiveinresolvingsovereigndebtcasessince2014,ithasgapsthatcouldposechallengesin futurerestructurings.AstheCOVID‐19‐19pandemichaltedbusinessactivityaroundtheworld,theIMF fieldedemergencyloanrequestsfrommorethanhalfofits189members,themostinitshistory. 3.3Trade Tradehasbeenaffectedinthefirstperiod(March‐June,2020)asairtransporthalted.Moreover countriesclosedtheirbordersfortheexportofmedicalessentials.Globalvaluechains(GVC)were disrupted,leadingtotheconclusionthatfirmscouldnolongerrelyon“justintime”deliveryof COVID‐19economicimpactandoptions  intermediateproducts,butneededtocreatemorebuffers.Agarwaletal.haveanalyzedtheimpactof previoushealthshocks(SARSandMERS)on“globalvaluechain”basedproducts.Theyfindnoevidence for“reshoring”inresponsetoeachofthesevirusoutbreaks.Theiranalysisalsosuggeststhatimport sharesfromChinaandUAEdeclinedduringeachoutbreak,concludingthatCOVID‐19mightleadto diversificationawayfromChina”(Agarwal). 3.4Naturalresources Commoditypriceshavereactedstronglytothecrisis,reflectingchangesinsupplyanddemanddueto policymeasurestolimitcontagion.Commodity‐dependentdevelopingcountriesaretherefore confrontedwithanunprecedentedcombinationofshocks.Thecrisishasbroughttotheforetheneed forlessdependencyoncommodityexportsandmechanismstostabilizecommoditypricesaswellas strategiesforeconomicdiversification(Tröster,2020).Whilemetalandagriculturalcommoditieshave recoupedtheirlossesfromtheCOVID‐19pandemicandareexpectedtomakemodestgainsin2021, energyprices,despitesomerecovery,areexpectedtostabilizebelowpre‐pandemiclevelsin2021 (WorldBank,2020). OilpricesareexpectedtoaverageUS$44perbarrelin2021(upfromUS$41perbarrelin2020.Demand isexpectedtoriseonlyslowlyastourismandtravelcontinuetobeheldbackbyhealthconcernsandas globaleconomicactivityisanticipatedtoreturntopre‐pandemiclevelsonlyin2022or2023.Thehigh pricelevelsof2011‐2014ofaroundUS$120abarrelarenotgoingtoreturninthisdecade.Thisputsa tremendousstrainoncountriesthatdependonoilformorethan50%oftheirGDPtoquicklyrestructure theireconomiesawayfromoildependency. Agriculturepricesareexpectedtoriseslightlyin2021,followinganestimated3%increasein2020 followingsomeshortfallinedibleoilproduction.Concernsaboutfoodinsecurityremainrelevantin severalemergingmarketanddevelopingeconomies.Theseconcernsarepromptedbyhitstoincomes fromtheglobalrecession,bottlenecksinfoodavailabilityatthelocallevel,andborderrestrictionsthat haveconstrainedlaborsupply.Foodpriceinflationhasspikedinseveralcountries(WorldBank,2020). 3.5.Thestockmarket TheCOVID‐19crisishasoftenbeencomparedtotheGreatDepression.Inatleastoneelementthereisa remarkabledifference:thestockmarket.Figure4showsthedifferencebetweenthedevelopment betweenDecember1927andAugust1929withtheCOVID‐19periodDecember2019throughAugust COVID‐19economicimpactandoptions  2020,whileFigure5givesamoredetailedpictureforthreedifferentstock‐markets.   Figure4Stockmarketprices1929and2020 COVID‐19economicimpactandoptions   Figure5Stock‐marketpricesFebruary‐July2020 Ofcoursenotallstockshavefollowedthesameupwardtrend.WeiandZhangdistinguishbetweenstay‐ at‐homestocks(SAHstocks)andthego‐outsidesstocks(GOstocks).Inparticular,theSAHstocksmainly containthestocksinthecategoriesofColdChainLogistics,Beer,Dairy,Webcast,CloudOffice,Cloud Games,andOnlineEducationandtheGOstocksconsistofthestocksinthecategoriesofSports,Ride‐ hailing,andTravel(Wei,2020).TheSAHpriceshaverisenmorethantheGOpricesdeclined,withan overallupwardeffect. Bakeretal.explaintheunprecedentedstockmarketreactiontotheCOVID‐19pandemicbythe alertnessandinterferenceofGovernment(Baker,2020).Thebottomlineisthatthestockmarket– whichexpressesthebeliefsofinvestors‐,reflectsahighlypositivedevelopmentoffutureprofits. 4. Options2021andbeyond:realigningresilienceinnational economieswithsustainability  World‐wideCOVID‐19haschangedourviewsoftheroleofpublicpolicyinoursocieties.Inthisrespect itiscomparabletoearliercrisesliketheDepressionandtheSecondWorldWar(Carlin,2020).Thepublic hasrealizedthatitispublicpolicywhichisneededtofirsttominimizetheimpactofthecrisisonthe shortrunaswelltoprevent“scarring”–long‐termlossofhumanandeconomiccapacityasaresultof COVID‐19economicimpactandoptions  thelockdowns.Itisalsopublicpolicywhichwillcontributetothere‐emergenceofvibranteconomies. “Marketswilldothejob”,usedtobetheimperativeinmostoftheworldbeforethecrisis.Howevernow werealizethatmarketscanonlyfunctionwhenGovernmentprovidestherightsideconditions,in fundingandininstitutions. Now,attheendof2020,wespeakaftermostGovernmentshavedonetheirutmosttosupportthe medicalsectordealingwithCOVID19‐patients,topreventcontagionthroughlockdownsandtesting,but alsotobreaktheeconomicdoomloop.MostGovernments,butnotall,havedone"whateverittakes" (Krugman,2020). Butthecrisisisnotover.Intheadvancedeconomiestheyears2021‐2022willstillbeneededtoachieve asufficientcoverageofvaccinationtoliftlockdownscompletely,whileduringthoseyearspartial lockdownswillbeessentialtocopewiththepressureonthemedicalsystem.Indevelopingcountries thereisarealfearthattheanti‐COVID‐19vaccinewillnotbeavailableinsufficientcoverageforthenext threetofouryears.Partiallockdownswiththeirnegativeimpactontheeconomymightstillbe necessary. Sowhatarethepolicyoptionsfortheyearstocome? Vaccinationisnotanoptionbutanimperative.Countrieswhichcanaffordtobuythevaccinewillsoon findthattheywillopenupforallthosewhoarevaccinated.Itwouldnotbesurprisingifbytheendof 2021forexampleairtravelortheuseofpublictransportoraccesstolargecrowdsisreservedforthose whoarevaccinated,evenifatpresentanysuchdiscussionmightleadtoadifferentconclusion. TheoptionsarearoundprioritiestobesetbyGovernmentstoensurethatthelongruneffectsofthe crisisaremitigatedandeconomiesre‐emergefromthedarkCOVID‐19days.Figure3presentsalistof theoptionsusedinthefirstyearoftheCOVID‐19crisis.Theseoptionsarestillrelevantfortheperiod whenvaccinationhasnotyetreceivedfullcoverage:Governmentsneedtosecureaccessto opportunities–education,jobs,financingtostartbusinesses–forthegenerationofyoungpeopleupon whomthefutureofthesecountriesdepends,atatimewhenunemploymenthasrisenandmanyfirms arebroke.Thisallmeans:additionalresourcesfortheStatewhilefiscalrevenueisdeclining. Sustainability WhiletheCOVID‐19crisisraged,worldtemperaturesstillwentup.Thiswasasignalthattheclimate crisiswhichmakestheworldunfitforhabitationandnutritionforits11billionpeopleby2100 (Attenborough,2020)iscreepingfasteraheadthanimagined,evenwhileCO2emissionswerereduced asaresultoftheCOVID‐19crisis.AnyGovernmentpolicyshouldbeimbeddedintheParisAgreements. Health Thejuryisstilloutonthebeststrategyforvaccinations.Whichgroupsshouldbeprioritized?Froma publichealthperspectivethephysicallyweakerandtheolderarethefirsttargetedgroup.Thisislikely tobemosteffectiveinreducingthe“over‐morbidity”(additionalnumberofdeathsduetoCOVID‐19, comparedthepreviousyears).Healthworkersneedtohaveahighpriorityastheycarrygreatrisksin dealingwithCOVID‐19infectedpatients. COVID‐19economicimpactandoptions  YetAngusDeatonandAnneCase(2020)pointtothe“deathbydespair”:peoplewhocomedesperate, becausetheyhavenomeanstosustainthemselves:thetremendousmentalhealthimpactofpoverty andunemployment.Doesn’tthisimplyapriorityforvaccinationsforgroupsatriskinthepopulation? Andwhataboutthoseineducation,inparticularinhighschoolanduniversity,bothstudentsandstaff? Weowetheyoungsterstoreturnasquicklyaspossibletoanormallife,whichimpliesthatalsothe (older)staffshouldhaveahighpriorityinthevaccinationcampaign Education Educationisaspecialpoint.Thecrisishasdelayedtheadvancementinintellectualandpersonal developmentofyoungsters(section2.3).Asubstantial“catch‐up”exercisewillbeneededto compensateforthat.Therateofreturnofthecostsofsuchanexerciseislikelytobesubstantial,as higherperformancemeansingeneralhighereconomicgrowth(Hanushek,2016). Investmentininnovation BeforetheCOVID‐19crisissomeGovernmentsintheadvancedeconomieshadalreadysetoutplansfor substantialnewinvestmentpropositions,basedonnewlyemergingtechnologies(likeICT).Morein generalcountriesmustlooktotransformtheireconomiesforaverydifferenttomorrow–includingby incentivizingthetransitiontoaclimateresilientandlow‐carboneconomy,andbybuildingdigitalskills andinfrastructure.Forexample,expandinginternetaccessinsub‐SaharanAfricaby10%couldincrease realpercapitaGDPgrowthbyuptoanestimatedfourpercentagepoints. Inothercountries,likethecountriesintheGulfregionmajorstructuraltransformationsofthe economiesawayfromoildependencywerealreadyontheway,likeVision2030inSaudiArabia. Oilexportingcountrieswillhavetorealizethattheoilpriceislikelytoremaindepressedforanextended periodoftime.TheWorldBank(AyhanKose)states:“Inthepost‐COVIDworld,thesecountriesneedto bemoreaggressiveinimplementingpoliciestoreducetheirrelianceonoilrevenues.”(WorldBank, 2020).Thegeneraltendencyawayfromfossilfuel–asameanstosavetheplanet‐willalsocontributeto depressedoilprices. Itappearsurgenttoensurethatearlierstructuraltransformationplansneedtoberampedupasa meanstore‐emergeoutoftheCOVID‐19crisis.Structuraltransformationisamatterofinvestment,but alsoofthe“right”institutionalarrangementstomaketheseinvestmentsprofitable.Timeandagainitis shownthatthatinstitutionsmatter(Kozhan,2020). COVID‐19economicimpactandoptions   Figure6Policyoptionstoaddresseconomicimplications Taxes Governmentwillhavetoexertthemselvestomanagethedebtincurredduringthecrisiswithnewfiscal measures.Taxesonwealthandonthetopincomesofcountrieshavetobemobilizedinordertoensure sufficientresourcesontheonehandwiththeleasteffectontheeconomy.Intheprocessincome inequalitymightbereducedwhichhelpsthenecessarysocialcohesionintheprocessofrestructuring andcontributestofutureeconomicgrowth(Easterly,2006)Anaggressivemovetowardshighertaxesis urgentlyneededtoavoidanausteritydriveinmuchoftheworldinordertorepaythedebt(andthe interestincurredonit).Anausteritydrivewouldharmthesocialinfrastructure,government effectivenessandinparticularhealthandeducation. Socialcohesionandpolarization The“license”ofGovernmenttoactissurelyrelatedto“socialcohesion”.Thisisanebulousnotion indicatingthetrustinGovernmentasactingtosupportthefutureofindividualsinsocietywhatever theiridentityis.LimitedsocialcohesiontranslatesinlimitedtrustinGovernmentandpolitical 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Unevendevelopmentandthebalanceofpaymentsconstrainedmodel:Termsof trade,economiccycles,andproductivitycatching‐upbyDaniloSpinola 2020-04 Time‐spacedynamicsofreturnandcircularmigration:Theoriesandevidenceby AmelieF.Constant 2020-05 MappingindustrialpatternsandstructuralchangeinexportsbyCharlotteGuillard 2020-06 Forreal?Incomeandnon‐incomeeffectsofcashtransfersonthedemandforfood byStephanDietrichandGeorgSchmerzeck 2020-07 Robotsandtheoriginoftheirlabour‐savingimpactbyFabioMontobbio,Jacopo Staccioli,MariaEnricaVirgillitoandMarcoVivarelli 2020-08 STI‐DUIinnovationmodesandfirmperformanceintheIndiancapitalgoodsindustry: Dosmallfirmsdifferfromlargeones?ByNandithaMathewandGeorgePaily 2020-09 TheimpactofautomationoninequalityacrossEuropebyMaryKaltenbergandNeil Foster‐McGregor 2020-10 Whatmattersinfunding:Thevalueofresearchcoherenceandalignmentin evaluators'decisionsbyCharlesAyoubi,SandraBarbosu,MichelePezzoniand FabianaVisentin 2020-11 TheproductivityimpactofbusinessvisitsacrossindustriesbyMariacristinaPiva, MassimilianoTaniandMarcoVivarelli 2020-12 Technologicalrevolutions,structuralchange&catching‐upbyJanFagerbergand BartVerspagen 2020-13 Semi‐endogenousgrowthmodelswithdomesticandforeignprivateandpublicR&D linkedtoVECMswithevidenceforfivecountriesbyThomasZiesemer 2020-14 TheeconomicimpactofpublicR&D:aninternationalperspectivebyLucSoete,Bart VerspagenandThomasH.W.Ziesemer 2020-15 Takingthechallenge:AjointEuropeanpolicyresponsetothecoronacrisisto strengthenthepublicsectorandrestartamoresustainableandsocialEuropebyJo Ritzen,JaviLopez,AndréKnottnerus,SalvadorPerezMoreno,GeorgePapandreou andKlausF.Zimmermann 2020-16 MigrationofhighereducationstudentsfromtheNorthAfricaRegiontotheUnited KingdombySamiaSattiOsmanMohamedNour 2020-17 OverviewoftheSudanUprisingbySamiaSattiOsmanMohamedNour 2020-18 Inter‐countryDistancing,GlobalisationandtheCoronavirusPandemicbyKlausF. Zimmermann,GokhanKarabulut,MehmetHuseyinBilginandAsliCansinDoker 2020-19 Howdoesinnovationtakeplaceintheminingindustry?Understandingthelogic behindinnovationinachangingcontextbyBeatrizCalzadaOlvera&MichikoIizuka 2020-20 Publicuniversities,insearchofenhancedfundingbyJoRitzen 2020-21 Ph.D.researchoutputinSTEM:theroleofgenderandraceinsupervisionbyGiulia Rossello,RobinCowanandJacquesMairesse 2020-22 LabourmarketeffectsofCOVID‐19insub‐SaharanAfrica:Aninformalitylensfrom BurkinaFaso,MaliandSenegalbyRackyBalde,MohamedBoly,andElvisAvenyo 2020-23 OccupationalsortingandwagegapsofrefugeesbyChristopherFBaum,HansLööf, AndreasStephanandKlausF.Zimmermann 2020-24 PolicyopportunitiesandchallengesfromtheCovid‐19pandemicforeconomieswith largeinformalsectorsbyRajneeshNarula 2020-25 EconomicgendergapintheGlobalSouth:howinstitutionalqualitymattersbyElena Bárcena‐Martin,SamuelMedina‐ClarosandSalvadorPérez‐Moreno 2020-26 HowimportantisGVCparticipationtoexportupgradingbyGideonNdubuisiand SolomonOwusu 2020-27 Patternsofgrowthinstructuralistmodels:Theroleoftherealexchangerateand industrialpolicybyGabrielPorcile,DaniloSpinolaandGiulianoYajima 2020-28 COVID‐19,Lockdowns,andAfrica’sInformalSector:LessonsfromGhanabyElvisK. Avenyo,JohnNanaFrancoisandTatendaP.Zinyemba 2020-29 Thepoliticaleconomyofpublicresearch,orwhysomegovernmentscommitto researchmorethanothersbyAndreaFilippettiandAntonioVezzani 2020-30 Economicpreferencesacrossgenerationsandfamilyclusters:Alarge‐scale experimentbyShyamalChowdhury,MatthiasSutterandKlausF.Zimmermann 2020-31 Internationalstudentmobilitydecision‐makinginaEuropeancontextbyTalitha Dubow,KatrinMarchand,MelissaSiegel 2020-32 SupplyanddemandinKaldoriangrowthmodels:aproposalfordynamicadjustment byGuilhermeR.MagachoandDaniloSpinola 2020-33 Productiveefficiency,technologicalchangeandcatchupwithinAfricabyEmmanuel B. Mensah,SolomonOwusuandNeilFoster‐McGregor 2020-34 OptimalsocialdistancinginSIRbasedmacroeconomicmodelsbyYosephGetachew 2020-35 Towardsanewindexofmobilemoneyinclusionandtheroleoftheregulatory environmentbyGodswayKorkuTetteh,MichelineGoedhuys,MatyKonteandPierre Mohnen 2020-36 SegmentedpathsofwelfareassimilationbyYip‐ChingYuandZinaNimeh 2020-37 Self‐selectioninphysicalandmentalhealthamongolderintra‐Europeanmigrants byAmelieF.ConstantandNadjaMilewski 2020-38 Theroleofinnovationinindustrialdynamicsandproductivitygrowth:asurveyof theliteraturebyMpehmetUgurandMarcoVivarelli 2020-39 Doesgendermatterforpromotioninscience?EvidencefromphysicistsinFranceby JacquesMairesse,MichelePezzoniandFabianaVisentin 2020-40 Automation,globalisationandrelativewages:Anempiricalanalysisofwinnersand losersbyAntonioFrancescoGravinaandNeilFoster‐McGregor 2020-41 StagnantmanufacturinggrowthinIndia:Theroleoftheinformaleconomyby GbenoukpoRobertDjidonouandNeilFoster‐McGregor 2020-42 Intra‐EUmigration:Sheddinglightondrivers,corridorsandtherelativeimportance ofmigrantcharacteristicsbyMiriamMack,SarahRoeder,KatrinMarchandand MelissaSiegel 2020-43 Rootsofdissent:TradeliberalizationandtheriseofpopulisminBrazilbyFrancesco Iacoella,PatriciaJustinoandBrunoMartora 2020-44 Theroleofdomestic‐firmknowledgeinforeignR&Dcollaborations:Evidencefrom co‐patentinginIndianfirmsbyNandithaMathew,LorenzoNapolitanoandUgo Rizzo 2020-45 Issub‐SaharanAfricadeindustrializing?byEmmanuelB.Mensah 2020-46 Doesvaluechainparticipationfacilitatetheadoptionofindustry4.0technologiesin developingcountries?byMicheleDelera,CarloPietrobelli,ElisaCalzaandAlejandro Lavopa 2020-47 Inter‐sectoralandinternationalR&DspilloversbyReneBelderbosandPierre Mohnen 2020-48 EconomicadjustmentduringtheGreatRecession:Theroleofmanagerialqualityby GilbertCette,JimmyLopez,JacquesMairesseandGiuseppeNicoletti 2020-49 SchumpeterandKeynes:Economicgrowthinasuper‐multipliermodelbyÖnder Nomaler,DaniloSpinolaandBartVerspagen 2020-50 Addressingtheproductivityparadoxwithbigdata:Aliteraturereviewand adaptationoftheCDMeconometricmodelbyTorbenSchubert,AngelaJäger,Serdar TürkeliandFabianaVisentin 2020-51 SocialassimilationandlabourmarketoutcomesofmigrantsinChinabyShuCaiand KlausF.Zimmermann 2020-52 ParentalgenderstereotypesandstudentwellbeinginChinabyShuaiChu,Xiangquan ZengandKlausF.Zimmermann 2020-53 Rethinkinghumanitarianaid&makingthecaseforhumanitariansocialprotection: Aresponsetothe2019GlobalRefugeeForumbyZinaS.Nimeh,TamaraA.Kool, FrancescoIacoellaandAlexanderHunns 2020-54 Women,leadershipandviolentextremism:Apotentialsecurityrisk?byAurélie WertzandDorcasMbuvi 2020-55 Communitymulticulturalismandself‐reportedimmigrantcrime:Testingthree theoreticalmechanismsbyArjenLeerkes,TinekeFokkemaandJonathanBening 2020-56 TheriseoftheservicesectorintheglobaleconomybySolomonOwusu,Adam SzirmaiandNeilFoster‐McGregor 2020-57 Oncethegreatlockdownislifted:PostCOVID‐19optionsfortheeconomy byJozefM.Ritzen