How should policy responses to the COVID-19 pandemic differ in the developing world?
The COVID-19 pandemic has already led to dramatic policy responses in most advanced economies, and in particular sustained lockdowns matched with sizeable transfers to much of the workforce.
This paper provides a preliminary quantitative analysis of how aggregate policy responses should differ in developing countries. To do so we build an incomplete-markets macroeconomic model with epidemiological dynamics that features several of the main economic and demographic distinctions between advanced and developing economies relevant for the pandemic. We focus in particular on differences in population structure, fiscal capacity, healthcare capacity, the prevalence of “hand-to-mouth” households, and the size of the informal sector.
The model predicts that blanket lockdown are generally less effective in developing countries at reducing the welfare costs of the pandemic, saving fewer lives per unit of lost GDP. Age-specific lockdown policies, on the other hand, may be even more potent in developing countries, saving more lives per unit of lost output than in advanced economies.