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‘Not a good time’: Assessing the economic impact of COVID‐19 in Africa using a macro‐micro simulation approach
Author(s) -
Morsy Hanan,
Balma Lacina,
Mukasa Adamon N.
Publication year - 2021
Publication title -
african development review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.654
H-Index - 32
eISSN - 1467-8268
pISSN - 1017-6772
DOI - 10.1111/1467-8268.12526
Subject(s) - economics , consumption (sociology) , shock (circulatory) , welfare , recession , poverty , pandemic , investment (military) , macro , covid-19 , general equilibrium theory , fiscal policy , macroeconomics , development economics , economic growth , market economy , medicine , social science , disease , pathology , sociology , politics , political science , infectious disease (medical specialty) , law , computer science , programming language
The paper studies the effects of the coronavirus disease 2019 (COVID‐19) pandemic on African economies and household welfare using a top‐down sequential macro‐micro simulation approach. The pandemic is modeled as a supply shock that disrupts economic activities of African countries and then affects households’ consumption behavior, the level of their welfare, and businesses’ investment decisions. The macroeconomic dynamic general equilibrium model is calibrated to account for informality, a key feature of African economies. We find that COVID‐19 could diminish employment in the formal and informal sectors and contract consumption of non‐savers and, especially, savers. These contractions would lead to an economic recession in Africa and widen both fiscal and current account deficits. Extreme poverty is expected to increase further in Africa, in particular if the welfare of the poorest households grows at lower rates. We also use the macroeconomic model to analyze the effects of different fiscal policy responses to the COVID‐19 pandemic.