Chile

Lockdowns Had a Large Negative Impact on Economic Activity in Chile

Some commentators maintain that lockdowns have little or no impact on the economy. They argue it is fear of the virus, rather than government restrictions per se, that causes people to stay at home and stop spending money.

Such commentators tend to rely on studies from the first half of 2020. Because there was a dramatic decline in mobility at the start of the pandemic – when people everywhere stayed at home out of fear – these studies typically find that lockdowns had a small effect on the economy. 

However, once the characteristics of the virus became better understood (e.g. that the death rate for those younger than 40 is extremely low), people in jurisdictions not under lockdown began venturing out again. As a result, the damaging effects of lockdown on the economy are only apparent when you examine several months of data.

In a study published in the Journal of Global Health, Chilean researchers examined the economic impact of localised lockdowns in Chile. They exploited variation in the timing and duration of lockdowns across 170 municipalities, comprising 89% of the country’s population.

As a measure of economic activity, the authors used the year-on-year change in monthly VAT receipts, which previous research has shown is strongly related to GDP. 

They began by plotting monthly VAT receipts in municipalities that were and were not under lockdown in May of 2020 (see chart below). The blue line corresponds to those that were, and the red line to those that were not.

The two series follow similar paths between 2014 and 2019. However, in 2020, the blue line falls substantially further than the red, indicating that lockdowns reduced economic activity over and above the effect of voluntary behavioural change. 

To gauge the impact of lockdowns more precisely, the authors ran a statistical model of year-on-year change in monthly VAT receipts, with days under lockdown as a predictor. The model controlled for a variety of factors, including both case and death numbers. 

They found that one month of lockdown reduced VAT receipts by 12.5%. Since municipalities without a lockdown saw VAT receipts fall by 15%, this means that lockdowns explain almost half the decline in economic activity. 

“Our estimates”, the authors note, “suggest that a three-to-four-month lockdown would reduce economic activity by approximately the same amount” as one year of the 2009 Great Recession. So much for the claim that lockdowns don’t harm the economy.

Chile Is No Reason Not to Lift Lockdown

The latest cautionary tale being held up to locked down Britons as the reason we can’t be released, including by Chief Medical Officer Chris Whitty, is Chile, where an ambitious vaccination programme (albeit with China’s questionable Sinovac vaccine) has not prevented the country experiencing a new surge of coronavirus infections.

But as with other supposed cautionary tales like France and Brazil, are things really as bad as they’re being portrayed by our doom-addicted scientists, politicians and media?

Here’s the actual state of play. The positive rate did indeed start drifting upwards again in mid-Feb and since the end of March has accelerated – though since southern-hemisphere Chile is now in the middle of autumn, this is not wholly surprising.

This is despite the vaccination programme, which rivals the UK’s in speed of rollout, getting going at the start of February. Chris Whitty has backed the vaccinated-people-letting-their-guard-down theory, but in fact Google mobility data shows no sign of that, with a steep decline in mobility beginning in early March. Dr Clare Craig has written an excellent piece in the BMJ on other possible explanations beyond blaming people for letting their hair down (an explanation that hardly works for care homes).

But whatever the explanation, positive cases and deaths in the UK are now very low, suggesting Chile can hope for a similar outcome before long (though it will be interesting to see how its winter affects this).

Importantly, though, Chile is still significantly behind the UK in terms of total Covid deaths, so as a cautionary tale it is a strange one to pick.