When China sneezes, middle east states get the cold

• Published date: 01 November 2020
• Author: Bijoy Rakshit
• Date: 01 November 2020
• DOI: http://doi.org/10.1002/pa.2155

PRACTITIONER PAPER

When China sneezes, middle east states get the cold

Bijoy Rakshit

Humanities and Social Sciences Department,

Indian Institute of Technology Ropar, India

Correspondence

Bijoy Rakshit, Humanities and Social Sciences

Department, Indian Institute of Technology

Ropar, Nangal Road, Rupnagar, Punjab

140001, India.

Email: bijoy.rakshit@iitrpr.ac.in

The main objective of this study is to extend an economic perspective on the outbreak

of COVID-19 pandemic in the Middle East economies. The COVID-19 pandemic, which

was initially considered as a Chinese-centric problem, has now affected more than

200 countries worldwide. The impact of the virus on human sufferings is unaccountable.

However, economists consider the repercussion of the outbreak as contagious economi-

cally as it has been medically. Throughout this paper, we mainly addressa few important

research questions about the economic aspects of COVID-19. We further highlight

three critical channels through which the economic effect of the outbreak can be

assessed. Finally, we explain the case of Middle East states and demonstrate the path-

ways that explain the economic repercussion of this global pandemic on the region. We

conclude the paper by providing a few policy recommendations for the Middle East

economies to fight the crisis.

1|COVID-19: AN OVERVIEW

The novel coronavirus, which is officially known as COVID-19, initially

emerged in the city of Wuhan in late November 2019. With its initial

outbreak in China, the virus is now spreading widely across countries.

This virus is a highly transmittable and pathogenic viral infection cau-

sed by severe acute respiratory syndrome coronavirus 2 (SARS-CoV-

2) (Sheeren et al., 2020). With more than 1 million confirmed cases

worldwide, the outbreak has brought considerable human sufferings.

After China, the top six economies that are severely affected by the

outbreak of COVID-19 are USA, Italy, Spain, China, Germany, and

Iran, respectively.

1

Every day new cases are being emerged and

reported from different countries, affecting more than 200 countries

so far. In the wake of the alarming international concern over the pub-

lic health emergency, the World Health Organization (WHO) has

declared the outbreak as a global pandemic. As of 2nd April 2020,

there have been more than 9,00,000 reported cases exceeding

47,795 total deaths worldwide (source: worldometer). Figure 1 high-

lights the total number of confirmed cases and mortality worldwide.

2|ECONOMIC ARGUMENTS BEHIND

COVID-19

In an increasingly globalized world, the impact ofCOVID-19 will not

only be confined to the public health crisis but also will exert a

devastatingeffect on the global economy. At thetime, when China has

experienceda drastic economic slowdowndue to the closure of several

manufacturingindustries, the operations of the global supply chainhave

also got affected. As a result, industries across the world, regardless of

their size classes, have experienced a contraction in their production.

Sectors that are primarily dependent on inputs from China are mostly

affected. Restrictions on both domestic and international travelling as

declared by manycountries have also positivelycontributed to the eco-

nomic slowdown. The outbreak has also created market anomalies and

disrupted theconfidence in the consumptionpattern of the consumers

globally. The international financial market has also responded to the

shock, and the stock market is seen to be at stake worldwide

(McKibbin&Fernando,2020). Beck (2020) has explainedthree possible

factors through which the effect of COVID-19 on the global financial

market can be evaluated. These factors are first, the extent to which

the virus will spread further and its impact on economic activities. Sec-

ond, the responsiveness of monetary and fiscal policies to the crisis.

Third, the regulatory reactions to the possible bank fragility. According

to Beck, as there has been lesser scope to monetary policy actions to

deal with the crisis as compared to theglobal financial crisis, regulatory

reactions willplay a vital role to deal with thesituation. Bolton, Freixas,

Gambacorta,and Mistrulli (2016) and Beck, Degryse, De Haas, and Van

Horen (2018) have emphasized that the most effective way to handle

the financial crises is to target relationship building with the borrowers,

especiallywith the small firms.

Received: 26 March 2020Revised: 2 April 2020Accepted: 10 April 2020

DOI: 10.1002/pa.2155

J Public Affairs. 2020;20:e2155.wileyonlinelibrary.com/journal/pa© 2020 John Wiley & Sons, Ltd1of7

https://doi.org/10.1002/pa.2155