- Northwestern researchers asked 30,000 people on three continents how the pandemic affected them.
- Households reported drops in income, as well as increases in food insecurity, and little support.
- One of the most promising tactics for moving past the pandemic’s effects is mobile money transfers.
- See more stories on Insider’s business page.
The COVID-19 crisis has been devastating for much of the global economy. Yet while the effects on established markets have been well-documented, less is known about the pandemic’s impacts on low- and middle-income countries, which account for the majority of the world’s population. This is partly because official statistics generally fail to capture the impact on informal markets, such as street-vendor sales, in which large sections of those economies participate.
So Kellogg finance professor Dean Karlan and Northwestern professor of economics Chris Udry, along with more than 20 collaborators, set out to measure the pandemic’s economic impact in low- and middle-income countries.
“These are the world’s most vulnerable people,” said Karlan, who along with Udry codirects Kellogg’s Global Poverty Research Lab. “The level of vulnerability is just fundamentally different in developing countries versus US and Europe, where even if someone is really low-income, they’re still better off than the poorest of the poor in developing countries, where the safety nets simply aren’t as strong.”
“We wanted to know the effect of the pandemic, and government policies to combat it, on individuals who rely on informal markets to sustain themselves and don’t have access to formal support mechanisms like social security or unemployment insurance,” Udry said.
Based on a phone survey of more than 30,000 people on three continents, the researchers found the pandemic’s impacts on developing regions to be deep, widespread, and negative: households across geographies and economic status reported significant drops in income and employment, as well as increases in food insecurity. And, crucially, few of these households reported receiving any kind of financial support.
As the authors write, for low- and middle-income countries, “the economic crisis precipitated by COVID-19 may become as much a public health and societal disaster as the pandemic itself.”
A global phone survey
While it’s not their normal method of data gathering, the researchers landed on a phone survey as the best method to use in a pandemic.
“It was like, ‘You want some data? This is the only way you can get it,'” Karlan said.
The method introduced a number of challenges for the researchers.
“We had to learn very quickly about how to conduct surveys by phone. You lose the trust and comfort that a face-to-face conversation engenders,” said Karlan.
To mitigate that loss, the researchers partnered with Innovations for Poverty Action to recruit local interviewers in each country, and took care to match languages, dialects, and accents between interviewers and respondents.
Another challenge: not everyone owns, or can easily borrow, a phone. “It meant we weren’t able to reach people without access to mobile phones,” Udry said. “That’s a whole set of vulnerable people we can’t get to until we’re able to go in person again.”
Due to this limitation, the study’s results likely represent a “best-case” scenario, as the interviews didn’t include those at the economic pyramid’s very bottom.
Ultimately the researchers conducted 16 surveys that were statistically representative of households in nine countries across Africa (Burkina Faso, Ghana, Kenya, Rwanda, Sierra Leone), Asia (Bangladesh, Nepal, Philippines), and Latin America (Colombia), starting in April 2020. Most of the surveys were coordinated by Innovations for Poverty Action.
In total, they surveyed 30,000 people living in both urban and rural areas, as well as in or near refugee camps. The researchers asked about changes in employment, income, food insecurity, access to markets (such as for purchasing groceries), receipt of government support, and domestic violence.
Bad news across the board
The study found that the negative impacts of the pandemic on developing regions are large and broad.
For example, income dropped for households in all settings during the pandemic. Across the 16 surveys, the median share of households that reported an income drop was a “staggering 70%,” the authors write, compared with a median of 7% reporting an income increase. The median share of households that experienced job loss was 30%.
In general, similar proportions of households across all socioeconomic levels reported drops in income and employment.
Moreover, the median share of households that reported food insecurity was 45%, with wide variability within and between countries. In Sierra Leone, for example, 87% of rural households reported food insecurity, nearly double the median value.
The crisis may have also contributed to increased domestic violence. In Kenya, for example, violence against women and children rose 4% and 13%, respectively, during the early months of the pandemic.
And, for the most part, people were on their own to weather the storm. Overall, the median share of households receiving government or NGO crisis support was only 11%.
The authors note that the scale of disruption seems to eclipse those of other global crises like the 2008 Great Recession and the 2014 Ebola outbreak. “The biggest take-home for me is the spread of the effect,” Udry said. “I expected the effects to be serious but didn’t realize it was going to reach almost everyone.”
“What we found makes clear the kind of calamity low-income households in developing countries are facing,” Karlan agreed.
To make matters worse, if other historical events are any guide, COVID’s impact will be long-reaching. For example, children in the US born soon after the 1918 influenza pandemic experienced lifelong declines in education and earnings compared with baseline expectations.
“One of the main messages of modern economics is that even relatively short-run shocks can have long-term effects,” Udry said. “Long after the pandemic is gone, there are likely consequences for the growth of kids’ knowledge and declines in the asset holdings of the poor.”
The impact, unfortunately, is likely to be felt for generations.
The best way forward
The research also points to policies that could help address the pandemic’s dire economic impacts – and mitigate the effects of future crises.
One of the most promising tactics is mobile money transfers from the government or NGOs, which are fast and require no risky face-to-face transaction. “We can reach a lot of people quickly with these innovative payment mechanisms,” Udry said.
Indeed, Karlan and Udry worked on this type of transfer with the government of Togo during the pandemic.
“We’ve helped them rapid-fire implement a targeted program of cash transfers to low-income households that were in the informal market,” Karlan said. “Now we’re helping the government use cell-phone data to refine and improve targeting methods, to help find low-income households and transfer them cash.” They’re exploring expansion of the strategy to Nigeria and Bangladesh.
Furthermore, the researchers say, governments and NGOs must build robust social support systems – with short-term components like Togo’s cash-transfer system and longer-term ones like skills training programs – to anticipate the next pandemic or economic crisis.
Granted, this wouldn’t be easy for the already cash-strapped governments of the countries studied here. But richer countries have an important role to play, partly for humanitarian reasons, but also because “disease transmission does not respect national borders,” as the authors write.
“We need some multinational players, like the World Bank, to help establish the methods, procedures, and technical knowledge for doing this,” Karlan said.
In general, the researchers agree that a more proactive, preventive approach is the right way forward.
“This crisis has been disastrous and widespread, with long-term effects,” Udry said. “We do have mechanisms that can help a lot of people, but we need to strengthen social security systems to provide greater resilience and support in the future. That’s the lesson to learn here.”
Karlan agrees. “We want our work to serve as a call to arms to groups,” Karlan said, “to do things like what Togo has done, to prepare for the next crisis.”