COVID-19 pandemic–related policy stringency and economic decline: was it really inevitable?

The coronavirus outbreak in 2020 shattered economies, public health and public well-being worldwide literally overnight. In response to the pandemic, most countries implemented a delicate balance of policy stringency and economic support to ensure public health, social security and a vibrant economy. With the pandemic slowly phasing out, our article explores the effectiveness of various governmental strategies for ensuring economic growth. The proposed econometric model is tested using panel quarterly data for 49 (37 OECD + 12 non-OECD) countries for all four quarters of 2020 and the first quarter of 2021. Our findings show that policy stringency and economic support are both negatively associated with economic growth. We also find that the stringency was largely responsive, oriented to preventing the collapse of health systems after infections had already become widespread, not towards saving human lives by preventing soaring levels of infection. While our findings appear to lend support for the view that a trade-off between human lives and the economy was inevitable, we also challenge this view by evidence that some countries were able to secure a double dividend of maintaining public health and a vibrant economy by a prudent far-sighted stringency policy of preventing the virus outbreak.