Assessing the Health and Economic Impact of the COVID-19 Pandemic in Palestine

This research seeks to assess the epidemiological and economic impacts of the COVID-19 pandemic in the context of developing countries using the particular case of the Occupied Palestinian Territories (the West Bank, excluding East Jerusalem and Gaza Strip). Unlike previous studies, the modeling strategy uses a dynamic stochastic general equilibrium model (DSGE) that accounts for heterogeneity across different population groups. The DSGE model allows us to introduce an epidemiological shock through a health production function, and to assess ex ante the impact of a pandemic under different scenarios. The study calibrates the model and matches it with the available macroeconomic and COVID-19 related data (reported during March-August 2020). The study presents and compares findings about the consequences of the COVID-19 pandemic using a set of purpose-built scenarios that include: (1) a generalized epidemiological shock; (2) a COVID-19 specific shock; (3) a health sector policy response; and (4) a prevention policy response through (i) the implementation of a lockdown and (ii) the administration of a vaccine. We capture and compare the effects of each of these scenarios on a set of micro-level variables, namely individuals' labor supply and their health capital and health expenditures; and a set of macro-level variables, namely the level of government health and non-health expenditures and GDP. Several interesting implications emerge from the empirical investigation. First, the impact of the COVID-19 pandemic mimics the impact of a generalized epidemiological shock (assuming equal risk of exposure for all). However, awareness of the differential impacts across different socio-demographic groups in the population, and particularly the double burden experienced by high-risk and vulnerable groups in the population should be of prime concern. Secondly, results clearly indicate that a policy response to the COVID-19 pandemic that relies on expanding government expenditure on the health sector would help mitigate the adverse impact of the pandemic on the health of the population. Admittedly, such policy may be inadequate to help rescue the economy. This suggests that a comprehensive – rather than an ad hoc sectoral policy response – is in order. However, under conditions of a highly constrained budget, a major policy issue is related to the government's available fiscal space. Thirdly, results clearly indicate that a public health policy response that specifically targets the health sector may be preferred over the lockdown policy which can be associated with disastrous consequences on the economy. This calls for alternative affordable measures that can target the trees rather than the forest. Such a policy requires striking the right balance between safeguarding lives (protecting health) and livelihoods (minimizing economic losses). Lastly, the results confirm that provision of a vaccine will put an end to the ongoing debate about whether policies should be set to either save lives or save economies. The provision of a vaccine appears to have an immediate positive impact at both the micro- and macro-levels.