The economic damage of COVID-19 on regional economies: an application of a spatial computable general equilibrium model to South Korea

Abstract

We developed a spatial computable general equilibrium model of South Korea to assess the spatial spillover effects of the COVID-19 pandemic on South Korea’s regional economic growth patterns. The model measures a wide range of economic losses, including human health costs at the city and county level, through an analysis of regional producers’ profit maximization on the supply side and regional households’ utility maximization on the demand side. The model’s findings showed that if the level of spatial interaction decreases by 10% as a result of social distancing policies, the national gross domestic product drops by 0.815–0.864%. This loss in economic growth can be further decomposed into 0.729% loss in agglomeration effect, 0.080–0.130% loss in health effect associated with medical treatment and premature mortality, and 0.005% loss in labor effect. The results of the models and simulations shed light on not only the epidemiological effects of social distancing interventions, but also their resultant economic consequences. This ex-ante evaluation of social distancing measures’ effects can serve as a guide for future policy decisions made at both the national and regional level, providing policymakers with the tools for tailored solutions that address both regional economic circumstances and the spatial distribution of COVID-19 cases.