The economic impacts of COVID-19 and city lockdown: Early evidence from China.

ABSTRACT

As the first major developing country heavily struck by the COVID-19 pandemic, China adopted the world's most stringent lockdown interventions to contain the virus spread. Using macro- and micro-level data, this paper shows that both the pandemic and lockdown policies have had negative and significant impacts on the economy. Gross regional product (GRP) fell by 9.5 and 0.3 percentage points in cities with and without lockdown interventions, respectively. These impacts represent a dramatic recession from China's average growth of 6.74% before the pandemic. The results indicate that lockdown explains 2.8 percentage points of the GDP loss. We also document significant spill-over effects of the pandemic in adjacent areas but no such effects of lockdown. Reduced labor mobility, land supply, and entrepreneurship are among the most significant mechanisms underpinning the impacts of the pandemic and lockdown. Cities with higher share of secondary industry, higher traffic intensity, lower population density, lower internet access, and lower fiscal capacity suffered more. However, these cities seem to have recovered well from the recession and quickly closed the economic gap in the aftermath of the pandemic and city lockdown. Our findings have broader implications for the global interventions in pandemic containment.