The Economics of the COVID-19 Pandemic

Introduction 

Since the outbreak of the Covid-19 pandemic, different studies have been conducted to assess the infection's outbreak, prevalence, and spread. This literature review synthesizes different studies conducted to address COVID-19, as the current global outbreak has jeopardized other economic and social activities of various communities worldwide. The novel coronavirus disease, commonly known as the COVID-19, is an infectious disease from Wuhan City in China in late December 2019. Later, the disease quickly spread to the rest of the world (Padhan & Prabheesh, 2021). By mid-2021, almost all counties across the world had registered cases of COVID-19. Like the 1890s Influenza and the 1918 Spanish Flu, the COVID-19 pandemic adversely affected the world's economy. While countries were struggling to reduce the impact of the infection, they imposed various measures and restrictions such as lockdown, quarantine, social distancing, curfews, and the use of face masks in public places. It impacted the economy as it compromised with various economic sectors such as the labour industry, tourism, and education. Also, the number of deaths as a result of the outbreak of the infection increased. This means that countries are losing their human resource, which adversely impacts the country's economic development. The COVID-19 pandemic ruined economies, necessitating restructuring to curb the impending economic threats brought about by the depreciating value of the dollar and reduced returns of financial markets. 

Reduction in Trade 

Studies have been widely conducted to examine the impact of COVID-19, particularly on the trade sector across the world. Different countries particularly recorded the overall trade reduction during the second quarter, when most countries had already reported cases of the infection. Therefore, most of these nations had imposed different regulations that impacted the movement of goods and services, with majority of the measures inhibiting the movement as various protocols and guidelines had to be adhered to before any movement, especially cross-border movement could be permitted. The r eduction in trade was therefore recorded by nations that adopted these regulatory measures, as the health of nationals was considered paramount and people could survive the temporary scarcities that could come up as a result of reduced trade. As trade became domesticated, the efforts by the world trade organization to improve international trade became altered. When countries are not adequately relying on one another to promote trade, it becomes hard to improve themselves and foster their relationships. 

Another aspect of limitation of trade through the COVID-19 restrictions is increased tariffs, which discouraged multinational and international trade. Concerning this, Ferdausy and Rahman (2009) conducted a study to analyze the impact of multinational corporations on developing countries. They defined multinational corporations as enterprises that operate across international boundaries and thus manage their operations and deliver their services in at least two countries (Ferdausy & Rahman, 2009). The study identified some key implications of the presence of MNCs within a country to include the generation of employment opportunities. While others may be considered harmful to developing countries through their unfavourable policies or destructive operations, MNCs generally positively impact fostering the operations of a country. 

In 2020, the World Trade Organization was swift to warn countries against increasing tariffs as it would put more pressure on international trade and compromise the operations of most countries (International Institute for Sustainable Development, 2020). The organization indicated that transport and travel were among the most impacted aspects of international trade, and this accounts for between 15% and 31% of the total cost of international trade. During COVID-19, most countries were forced to impose border closure (International Institute for Sustainable Development, 2020). While such a step was one way of securing the health of its citizens, its impact on the local and international economy is significant, impacting both maritime and land economies. WTO further indicates that the imposition of increased tariffs and other trade restrictions reduced the performance of land and marine shipping by 25 per cent in 2020. 

Zhang et al. (2021) conducted a study to explore the impact of COVID-19 on international trade. Zhang et al. (2021) acknowledge that the pandemic had negative implications on global trade like any other economic sector across the world. In this case, the researchers utilized monthly data from the United States and China to conduct the analysis. The researchers reported a direct relationship between the number of deaths from COVID-19 and the trade volumes reported from the import and export data within the countries. This shows that the disease directly impacts international trade, thus calling international organizations to develop joint initiatives to foster trade across international boundaries. Also, Zhang et al. (2021) recommended that countries develop policies that would govern their trade relations with other nations to improve international trade and restore it like before the disease. 

Also, the study of Cardoso (2020) focused on analyzing the impact of COVID-19 on the GDP of countries. In his analysis, Cardoso (2020) indicated that the disease reduced the GDP by 4.9 per cent by the second quarter in the United States. That was a significant decrease, signalling that trading in the country was going down considering that GDP is a measure of the economic production of a country. Considering that COVID-19 mainly impacted local and international operations, its impact on the GD could therefore not be avoided. Cardoso (2020) further reported that a better percentage of the GDP was reported to be used mainly in procurement. Most of this was done on the part of the medical equipment to counter COVID-19, was some was used to procure food and other essential items to the most vulnerable. The use of national money in non-developmental agendas could therefore result in a decrease in the GDP. The decline in GDP affected productivity levels, thus reducing the economy of the country. In most countries, a reduction in trade between nations further led to a significant drop in the levels of economic activities that the country engaged in. This implies that such nations lost employment opportunities for their citizens working on international trade. The COVID-19 also impacted others since they could not make their orders across international boundaries. For example, the distribution of second-hand clothes from developed countries to the developing nations in Africa and other parts of Asia was compromised as countries were afraid that such business could increase the spread of COVID-19. Therefore, while such a business stopped, those engaging in such a business were adversely affected. 

The above studies indicate that COVID-19 played a significant role in reducing domestic and international trade among nations. Therefore, as countries engage in rapid policy development to foster international business and restore the global economy, they should ensure that such policies effectively normalize international trade operations. 

Reduced Consumption of Goods and Services 

Another sector that some studies focus on is the effect of COVID-19 on the consumption of goods and services. This is a sensitive issue considering that human consumption is what drives the local and international economy. Kim et al. (2020) conducted a study in Singapore to examine the impact of COVID-19 on the consumption of goods and services. The study indicates that human consumption is highly dependent on labour. Therefore, activities that influence the labour market are likely to influence consumption as well. For example, reduced income during the time of the COVID-19 may ravage one's consumption. In their study, Kim et al. (2020) indicated that after the COVID-19 outbreak, the labour market was adversely affected as many people lost their jobs. In this case, the disease reduced the household consumption of Singaporeans by 22.8 per cent. Labor also dropped by 5.9 per cent between the time of the COVID-19 outbreak and April 2020. Another impact on the labour market is the reduced working hours and the government efforts to discourage on-site working and promote online working. 

Further analysis indicated that reduced consumption of goods and services was primarily reported by individuals with higher incomes (Kim et al., 2020). However, consumption of labour was reported among individuals with little income. The study concluded that a reduction in the consumption of labour and goods and services might have been caused by the people's attempt to avoid interaction with others to reduce the risks of contracting COVID-19. 

Another significant impact of the COVID-19 is the laying-off of workers by local and international companies. Such an action would increase unemployment levels, thus reducing one's spending abilities. Eichenbaum et al. (2020) conducted a study to address this concern. The study indicated that as companies laid off some of the workers following their inability to pay, most individuals reported an income loss which would later impact their ability to purchase goods and services. Their purchasing power significantly drops due to income loss. In general, the COVID-19 led to a massive loss of jobs in the domestic and international markets, which Eichenbaum et al. (2020) indicated to reduce the national purchasing power. A reduced purchasing power implies that the country is unable to buy goods and services like their initial times before the outbreak of COVID-19 and thus unable to consume goods and services in the right goods and quality to meet their needs and preferences. 

Also, COVID-19 had adverse implications on the financial markets. Financial markets have been a backbone to the economies of most countries by revenue generation through foreign exchange. Different researchers conducted studies to explore the impact of COVID-19 on the financial markets. The first study was conducted by Al-Awadhi et al. (2020) to assess the effect of the virus on the stock markets. In this case, it affects returns from the markets. Using panel analysis to test the variables, the researchers indicated deaths resulting from COVID-19 had negative results on the stock returns across local and international companies. This shows that all countries listed in the stock markets reported reduced performance due to the COVID-19. 

Topcu and Gulal (2020) conducted a similar study to examine the effect of COVID-19 on stock markets. This was done on emerging stock markets between March 10 to April 30, 2020. The findings show that COVID-19 significantly impacted the stock markets throughout the analysis. The study further indicates that the implications of the pandemic were high among the Asian markets compared to other markets across the world (Topcu & Gulal, 2020). As the infection progressed across different countries, the survival of many economies was significantly dependent on the stimulus package that the government provided them to cushion businesses and prevent them from collapsing. 

However, some studies report that the COVID-19 outbreak impacted the operations of other companies positively. Cakici and Zaremba (2020) conducted a study to explore how the pandemic impacted the manufacturing sector in China. The study reported that despite the adverse implications on the other sectors of the economy, the stock prices of manufacturing and technology companies in China performed positively. This can be explained by exploring the time it took the Chinese economy to recover from COVID-19. It was the first country to revive its economy after three months of fighting the virus. The study of Apergis and Apergis (2020) reported that the Chinese medical sector was not negatively affected by COVID-19 since it took little time to address COVID-19. It is worth noting that China was the top supplier of medical equipment, test kits, and inhalers when COVID-19 was at its peak. 

The above analysis shows that the COVID-19 outbreak had adverse implications on employment and other sectors, which lowered the people's income level. A decrease in income led to reduced purchasing power, thus limiting their ability to purchase consumer goods and services. 

Liquidity, Currency Depreciation, and Reduced Oil Prices 

COVID-19 had significant impacts on liquidity, currency depreciation, and other revenue-generating sectors. Many countries worldwide imposed strict measures such as lockdowns and compulsory quarantine on visitors, among other measures that sought to reduce the spread of the infection. These measures had adverse effects on the country's liquidity, as reported through the depreciation of the dollar and a significant drop in oil prices. Also, the foreign direct investment flow was adversely affected. Organization for Economic Cooperation and Development (2020) indicates that counties expected a drop in FDI flows by 30 per cent at the start of the COVID-19 era under the most optimistic scenario. This follows that many countries focused more on promoting public health to address the crisis while implementing policy measures meant to address the resulting regression from COVID-19. Organization for Economic Cooperation and Development (2020) further shows that FDI plays a critical role in supporting the economies of different nations. It may provide financial support to affiliate countries and support their governments to generate more income to address the problem by linking up with local firms. However, its decline due to the impact of COVID-19 is expected to go below the pre-crisis levels if the governments do not put in place sufficient public health measures through strong and effective policies and regulations. 

In terms of currency values, most countries reported a significant drop. The demand for the dollar has caused its value to appreciate and affected liquidity levels (Garg & Prahbeesh, 2021). Unlike the US dollar, whose demand increased and thus became stronger, some of the top currencies, such as the Japanese Yen, dropped in value. Corsetti et al. (2020) analysis indicate that most countries experienced exchange rate volatilities, with the broad dollar index rising by 8% with two weeks of the disease outbreak. In this case, most countries considered the US dollar the safest currency, which increased the demand for the currency. However, countries such as New Zealand held a negative balance on the dollar, considering that they hedged their assets by selling domestic currency and purchasing the dollar-linked assets within the forward markets as a way of securing them if the effects of the pandemic become unbearable. Therefore, as the exchange rates increased in favour of the US dollar following the increased demand, the country's economy became more stable, despite the economic impact of the disease being felt in all parts of the world. However, some currencies may be reported to have performed better compared to COVID-19, considering rapid economic recovery. For example, the exchange rate between the US dollar and Yuan increased in favour of the Chinese currency, implying that China responded to the economic impacts of the infections better. 

Other researchers have investigated the impact of COVID-19 on oil prices. In March 2020, Saudi Arabian oil markets produced excess oil barrels while the demand was low, causing the product to retail at a cheaper cost (Apergis & Apergis, 2020). The reduced demand for oil prices resulted from the economic implications of COVID-19 on key sectors which require oil. For example, there was a decreased demand for oil in the transport sector since the imposition of COVID-19 control measures reduced the workload in the sector. It also reduced the movement of people within and between countries. Other critical sectors include the manufacturing sector, considering that the government put more energy into addressing the health complications of the pandemic alongside implementing different preventive measures. 

Recommendations and Conclusion 

From the above literature analysis, studies show that the economic impacts of COVID-19 have been very detrimental to countries’ economies. It has significantly affected the social, health, and economic lives of the people. Most countries engaged in vaccine development, which led to the evolution of different varieties across the world. However, despite the efforts to adequately address the problem, the vaccine has not been distributed worldwide. Also, some countries may still have weak legislation that may undermine the giving out of the vaccine. Therefore, further recommendations are required from the government towards the prevention and management of the infection. Thus, the study recommends further development of legislative and policy actions to help restructure the world economies affected by the COVID-19 pandemic. These policies may have some throwbacks. For example, the study of Hoffman et al. (2020) note that the adoption of monetary policies may not be practical due to the volatility in exchange rates and capital flows. Also, some regulations, including imposing curfew and quarantine, are required by the government, and thus no need to worry. 

Another issue that affected the problem is the macroeconomic factors such as inflation, macro-prudential regulation, and forex reserve accumulations are projected to control fluctuations in exchange rates and capital flows by the IMF (Drehmann et al., 2020). These trade deficits bring an imbalance in trade in the exchange rate, thus lowering the values of domestic currencies. 

The first recommendation to further manage the economic impact of COVID-19 is to introduce fiscal stimulus packages that Chakraborty (2020) notes to stabilize demand levels within the domestic markets. Without these packages, the ability and willingness of the people to purchase products and services will be below. Also, with the introduction of different fiscal policies, governments can restructure themselves and develop more reliable systems that will insulate their economy from further implications of COVID-19. 

References 

Apergis, E., & Apergis, N. (2020). Can the COVID-19 pandemic and oil prices drive the US partisan conflict index? | Published in energy research letters . Energy RESEARCH LETTERS. https://erl.scholasticahq.com/article/13144-can-the-covid-19-pandemic-and-oil-prices-drive-the-us-partisan-conflict-index 

Cakici, N., & Zaremba, A. (2020). Misery on Main Street, victory on Wall Street: Economic discomfort and the cross-section of global stock returns . Digital Object Identifier System. https://doi.org/10.2139/ssrn.3730645 

Cardoso, J. L. D. L. (2020). The crisis that looks like no other: reflections on the "corona-crisis." Revista Katálysis , 23 (3), 615–624. https://doi.org/10.1590/1982-02592020v23n3p625 

Chakraborty, T. L. (2020, February 2). COVID-19 and Macroeconomic Uncertainty: Fiscal and Monetary Policy Response . https: //Ideas.Repec.Org/p/Npf/Wpaper/20-302.Html. https://ideas.repec.org/p/npf/wpaper/20-302.html 

Corsetti, G., Marin, E., Lilley, A., Maggiori, M., Neiman, B., & Schreger, J. (2020). Currency hedging, exchange rate movement, and dollar swap line usage during the Covid-19 pandemic. https://voxeu.org/article/currency-hedging-exchange-rate-movement-and-dollar-swap-line-usage-during-covid-19 

Drehmann M., Farag M., Tarashev N., Tsatsaronis K. Bank for International Settlements. 2020. Buffering Covid-19 losses-the role of prudential policy (no. 9) https://www.bis.org/publ/bisbull09.pdf . 

Eichenbaum M.S., Rebelo S., Trabandt M. National Bureau of Economic Research Working Paper (26882) 2020. The macroeconomics of epidemics. https://www.nber.org/system/files/working_papers/w26882/w26882.pdf . 

Ferdausy, S., & Rahman, M. S. (2009). Impact of multinational corporations on developing countries. The Chittagong University Journal of Business Administration , 24 (3), 111-137. 

Garg, B., & Prahbeesh, K. P. (2021, February 15). The nexus between the exchange rates and interest rates: evidence from BRICS economies during the COVID-19 pandemic | Emerald Insight . HTTPS: //Www.Emerald.Com/Insight/Content/Doi/10.1108/SEF-09-2020-0387/Full/Html. https://www.emerald.com/insight/content/doi/10.1108/SEF-09-2020-0387/full/html 

Hofmann B., Shim I., Shin H.S. Bank for International Settlements. 2020. Emerging market economy exchange rates and local currency bond markets amid the Covid-19 pandemic (no. 5) https://www.bis.org/publ/bisbull05.pdf . 

International Institute for Sustainable Development. (2020). WTO Warns of Increasing Trade Costs Due to Pandemic. https://sdg.iisd.org/news/wto-warns-of-increasing-trade-costs-due-to-pandemic/ 

Kim, S., Koh, K., & Zhang, X. (2020). Short-Term Impact of COVID-19 on Consumption and Labor Market Outcomes: Evidence from Singapore. 

Ng, W. L. (2020). To lockdown? When to peak? Will there be an end? A macroeconomic analysis on COVID-19 epidemic in the United States. Journal of Macroeconomics , 65 , 103230. https://doi.org/10.1016/j.jmacro.2020.103230 

Organization for Economic Cooperation and Development. (2020). Foreign direct investment flows in the time of COVID-19. https://www.oecd.org/coronavirus/policy-responses/foreign-direct-investment-flows-in-the-time-of-covid-19-a2fa20c4/ 

Padhan, R., & Prabheesh, K. P. (2021, June 1). The economics of COVID-19 pandemic: A survey . PubMed Central (PMC). https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7906538/ 

Topcu, M., & Gulal, O. S. (2020). The impact of COVID-19 on emerging stock markets. Finance Research Letters , 36 , 101691. 

Zhang, W. W., Dawei, W., Majeed, M. T., & Sohail, S. (2021). COVID-19 and international trade: insights and policy challenges in China and USA. Economic Research-Ekonomska Istraživanja , 1-12.