COVID-19 has disrupted the world economy partly through strict public health measures. These range from social distancing to complete lockdown, constraining economic activity. But was the decline in economic activity during lockdowns attributable mainly to these restrictive policies, or to the voluntary choices of consumers? When people are either infected or afraid of getting infected by the virus, they may decide voluntarily to stay at home.
In new research, to be presented at the annual conference of the Royal Economic Society, a research team from King's College London seeks to disentangle the effects of the lockdowns from those of the virus. The research examines the specific channels through which the virus affected consumption, and how this varied across waves. The authors of the study are Nora Neuteboom, George Kapetanios, and Alexia Ventouri.
Using geo-located transaction data from two million customers of the ABN AMRO bank, the researchers can distinguish the economic effects of voluntary responses to COVID-19 from those attributable to lockdown measures. This is achieved by measuring the differences in spending and differences in the size of the COVID-19 outbreak by municipality, in the Netherlands.
The Dutch government’s strategy of a nationwide lockdown presents an advantage for the statistical approach: while the lockdown policy was implemented nationwide on 12 March, both the incidence of the illness and its timing varied widely across different municipalities. Hence, while the lockdown measures induced similar changes in spending across the Netherlands, spatial variation remained, because the COVID-19 virus had different effects in different municipalities across the country.
The authors ﬁnd that, during the first COVID-19 wave, the number of new hospitalized COVID-19 cases in a municipality had a strong negative and statistically significant effect on the volume of physical transactions by consumers. Municipalities in the Netherlands that saw a large COVID-19 outbreak struggled more in economic terms than municipalities that saw fewer COVID-19 cases.
One explanation which has been put forward is that, when the pandemic surged, people were more willing to comply with the imposed non-pharmaceutical interventions (NPIs) and therefore consumption decreased. The authors do not find any evidence for this explanation, as their results indicate that COVID-19 did not correlate with spending in sectors that were subject to NPIs.
The authors also find that consumer responses to the virus were not constant over time: the results show that the same effect of the local COVID-19 outbreak on transactions did not appear during the second wave.
This seems to suggest that people might have adapted their behaviour. Perhaps a certain amount of fatigue with the NPI rules came into play, or alternatively, as more information on the COVID-19 virus became available, consumers could adapt their behaviour in such a way that it did not affect their aggregate consumption.
When looking at online and offline supermarket spending, the authors find that municipalities which saw a large number of COVID-19 hospitalized cases during the second wave also saw a larger increase in online grocery shopping. When the COVID-19 pandemic progressed, more information became available on its infectiousness and which measures were effective to limit transmission of the virus. The result suggests that consumers adapted their behaviour, perhaps finding different (and safer) channels to maintain their consumption patterns.
Ms Nora Neuteboom (King’s College London)
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