The Economic Risk of COVID-19 in Developing Countries: Where is it Highest?

Publication Date
Financial Markets Group Special Papers SP 257
Publication Authors

We measure the economic risk of COVID-19 in developing countries using pre- pandemic data sources. Following the standard conceptual model of disasters, we use data from 2014-2018 to compute measures for exposure, vulnerability, and resilience of the local economy to the economic shock of the epidemic. Using a battery of proxies for these three concepts, we calculate the principal components of exposure and vulnerability to it, and of the economy’s resilience (i.e., its ability to recover rapidly from the shock). We find that the economic risk of this pandemic is particularly high in the poorer parts of the developing world. The economic risk from COVID-19 is not located in particular in China, where the virus originated, nor where most of the confirmed cases are currently found – in the United States and Western Europe. Rather, the highest economic risks are in Sub-Saharan Africa, and the poorest parts of South Asia, regions that do not get much global attention in normal times, and get even less when the media’s interest is turned to the tragedies happening in places like Bergamo and New York City. Our spatial index of these economic risks is similar when comparing an ad-hoc equal weighting algorithm for the three components of the index (an algorithm that assumes equal hazard for all countries), and one based on an estimated weights using previous aggregated Disability-Adjusted Life Years losses associated with communicable diseases.