Assessing the Effects of Covid-19 Containment Measures on Manufacturing and Services Industries

This paper analyzes the short-term economic impacts of non-pharmaceutical interventions introduced in response to the Covid-19 pandemic on the manufacturing and services industries using cross-country data and assesses the role that fiscal and monetary stimulus deployed had played so far. To this end, the manufacturing and services Purchasing Managers Indices (PMI) are regressed seperately in a panel data setting on Oxford StringencyIndex, which is a measure of government containment measures, and proxies for fiscal and monetary policy responses. Possible impacts of the progression of pandemic are also controlled for. The instrumental variable approach and system generalized method of moments are used to address potential endogeneity issue. Our empirical results from the cross-country analysis suggest that manufacturing PMI can fall by 3 points should the stringency of containment measures rise to the average maximum reached in the spring. We also show that the services PMI is more vulnerable to an increase in the stringency of non-pharmaceutical interventions. Our findings confirm that these adverse consequences can be averted by fiscal and monetary policy responses, which suggest that accommodative fiscal and monetary policies need to remain in place especially in countries with significant tightening in containment measures.