Assessment of the Impact of COVID-19 Pandemic on Economic Performance: DSGE and Probit Investigations

Abstract

The paper proposes an innovative microeconomic analysis of the effects of COVID-19 on the economic performance by relying on two different approaches. Firstly, we consider a theoretical investigation by implementing a DSGE model where we propose a negative health shock on the supply part of the economy. The second approach is based on empirical investigation via Ordered Probit Regressions using the Saudi Labour Force Survey where we focus on time and regional effects by comparing 2019 and 2020 indicators. On one side, our findings reveal that health shock impacts household health spending. An affected household by the COVID-19 will see its resources decreasing due to the indirect costs of the pandemic related to the loss in productivity and labour supply. It is much more than that the COVID-19 pandemic hurts working hours and earnings. On the other side, the results show that individuals with higher degree of schooling and high skills seem to be not affected during the pandemic. Additionally, the effect of the current health crisis is more noticeable in Riyadh, Southern and Western region and is more intensive in the private sector and for non-Saudi workers.