Understanding the immediate consequences of the COVID-19 pandemic on consumer behaviour is essential for informing the policy makers on the economic cost of strict measures, such as population lockdowns and business shutdowns. Yet, estimating the effect of the health shock on consumption, net of policy restrictions, is challenging because such measures affect consumer choices. South Korea is an interesting case because its policy response in the early stages of the pandemic did not involve such restrictive measures. We exploit this fact to study the consequences of the health shock on consumption. Because the intensity of the pandemic varied greatly across administrative regions, we are able to quantify the direct effect of the health shock on consumption at the epicentre of the pandemic and to compare it with that in locations initially spared from the virus. Further, we quantify spillover effects from the epicentre to the periphery by studying changes in consumption outside of the epicentre. Our results show that consumers adjusted their response as a function of the local and national evolution of the pandemic, refraining from exposing themselves to the health risk in cities and sectors that are relatively more exposed to the virus. This implies that consumers’ voluntary response to the pandemic can contribute to alleviate the trade- off between health and economic objectives, minimising the economic cost and mitigating the spread of the virus. Link to the article
KIM, C., SANTACREU VASUT, E. and SHIN, E.K. (2020). Trade-off between health and wealth? Insights from COVID-19 in South Korea. Covid Economics 58, 19 November, p 57-84, Centre for Economic Policy Research (CEPR).