Economic Impact of COVID-19 Across National Boundaries: The Role of Government Responses — Research Note
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Research Note by Omrane Guedhami, April Knill, William Megginson and Lemma W. Senbet, Economic impact of COVID-19 across national boundaries: The role of government responses, Journal of International Business Studies (2023) 54, 1278-1297, with online publication date 4 May 2023. The abstract says the note assesses the interdisciplinary literature on COVID-19 and its impact on individuals and firms, with a focus on heterogeneity in government responses and their implications for international finance and international business research. It discusses disparities in vaccine distribution, government policy responses, and impacts in low-income versus high-income countries, describes a source of data, and offers ideas for future research. The views are the authors'.
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Journal of International Business Studies (2023) 54, 1278–1297
ª 2023 Academy of International Business All rights reserved 0047-2506/23
www.jibs.net
RESEARCH NOTE
Economic impact of COVID-19
across national boundaries: The role
of government responses
Omrane Guedhami1,2, Abstract
This Research Note provides an assessment of the burgeoning interdisciplinary
April Knill1, literature surrounding the COVID-19 pandemic and its impact on both
William Megginson3,4 and individuals and firms, with a particular focus on the heterogeneity in
Lemma W. Senbet5 government responses and their implications for international finance and IB
research. In particular, we discuss disparities in vaccine distribution,
1
University of South Carolina, Columbia, USA; government policy responses, and impacts in low-income versus high-income
2
SKK Business School, Sungkyunkwan University countries, as well as lessons learned from the pandemic. We describe an
(SKKU), Seoul, Korea; 3 University of Oklahoma, important source of data in this area and provide ideas for future research.
Norman, USA; 4 UIBE (Beijing), Beijing, China; Journal of International Business Studies (2023) 54, 1278–1297.
5
University of Maryland, College Park, USA https://doi.org/10.1057/s41267-023-00612-3
Correspondence:
O Guedhami, University of South Carolina, Keywords: COVID-19; pandemic; healthcare crisis; government responses; economic
Columbia, USA impact; financial impact; international business; multinational corporation
e-mail: omrane.guedhami@moore.sc.edu
INTRODUCTION
COVID-19 is a crisis of epic proportions. The ongoing responses,
primarily from governments around the world, have been com-
mensurately dramatic. Multilateral institutions, including the
International Monetary Fund (IMF) and the World Bank, have also
responded, as have knowledge producers, particularly data
providers/suppliers and analysts. Government responses worldwide
have varied considerably, but have included such measures as
limiting unnecessary travel, restricting access to work and educa-
tional locations that would involve close proximity to others, and,
in some cases, compelling citizens to shelter in place. Where
government responses were less restrictive, many business owners
took measures to keep employees and customers safe, as well as to
shield themselves from potential liability. These measures, however
necessary, caused dramatic (albeit temporary) economic contrac-
tions. Moreover, the traditional tools that governments can use to
‘‘fix’’ economic crises (e.g., interest rate policy) provided limited
remedies, since this crisis was not born from more typical financial
or monetary system crises, but rather from an unprecedented
Received: 7 August 2022
Revised: 28 November 2022
health pandemic.
Accepted: 6 December 2022 Further complicating matters, COVID-19 has had a swift,
Online publication date: 4 May 2023 profound, and diverse impact on almost all facets of life, affecting
Economic impact of COVID-19 across national boundaries Omrane Guedhami et al.
1279
both individual firms and the global economy examine the efficacy of various government poli-
simultaneously. Some multinational firms, such as cies, as well as the impact of twin economic and
Delta Airlines and the French automaker, Renault, health crises, which had not been well studied
were devastated (at least initially) and required before. We acknowledge the difficulty of making
government bailouts; others, such as Amazon and any credible assessments of policy outcomes and
large tech firms, have flourished. These are dra- policy recommendations with so little time having
matic effects of the pandemic, particularly in its passed. This area provides fertile ground for a
earlier stages, but whether they will last into the burgeoning literature as concerns about developing
longer future is yet to be determined. However, the countries continue to mount, given their limited
disparate impact can be partially explained by fiscal capacities and weak healthcare and digital
industry-specific factors. infrastructures.
There are other, surprising, factors at play. In this Research Note, we provide an assessment
Guedhami, Knill, Megginson, and Senbet (2022), of the economic impact of COVID-19 across
for example, find that the internationalization of national boundaries. We focus on the variety and
the firm (its degree of multinationality) has created severity of government responses, and how these
a valuation discount during this crisis. This dis- responses impacted public health and economies,
count, relative to domestic-only firms, has many from the perspective of businesses and households.
influences, particularly supply chain issues and We highlight the economic effect, although we
international sales disruptions, but also ill-timed recognize that a primary channel is the health
and ex post excessive investments in human capital, effect. We look at differential responses between
research and development, and fixed assets, which advanced and low-income countries, as well as
are more complex for multinational firms. Focusing differential effects on industries and sectors. We
on the banking sector, Duan, El Ghoul, Guedhami, discuss how the adverse economic impact of gov-
Li, and Li (2021) show that the COVID-19 pan- ernment responses led to a narrowing of fiscal space
demic increased systemic risk around the world, for many countries along with increasing debt
mainly through stricter government policy vulnerabilities, especially for low-income countries,
response. They also find that differences in formal with particular responses by multilateral agencies,
banking regulations and informal institutions help such as the IMF and the World Bank, through debt
explain the adverse impact of the pandemic shock suspensions and restructurings (Augustin, Soko-
on systemic risk. lovski, Subrahmanyam, & Tomio, 2022; Heitzig
Other differences in how the pandemic has et al., 2021).
impacted companies are related to the timing of a Our Research Note is unique. Although we offer a
country’s first case and the corresponding new perspective, it is less about the state of existing
responses by its respective governments (Meggin- research in a particular area of international busi-
son & Fotak, 2020). The timing of the pandemic’s ness studies than about a novel area of research
impact was based not only on the spread of the born from the COVID-19 pandemic. Indeed, most
virus to individual countries, which was staggered, of the guidance in the academic literature sur-
but also on the deep economic contractions caused rounding twin crises is about banking and currency
by sharp reductions in trade volume, tourism, crises (Glick & Hutchison, 2000; Kaminsky &
remittances, hospitality, and capital flows, which Reinhart, 1999). While there exists research on
affected most countries immediately through the the health effects of economic crises, mostly exam-
interconnected global economy. Indeed, the eco- ining mental health effects (Karanikolos, Mla-
nomic impact was felt in some countries, particu- dovsky, Cylus, Thomson, Basu, Stuckler,
larly in Africa, before their first documented case Mackenbach, & McKee, 2013), research on simul-
(Heitzig, Ordu, & Senbet, 2021). taneous economic and health crises is lacking
The global pandemic has thus affected firms in a because we have not experienced a pandemic of
broad swath of international economic and trade this severity since the Spanish Flu in 1918. Thus,
activities, as outlined by the Congressional the need for research on the various ways these
Research Service. In this regard, it is instructive to twin crises can impact firms, investors, global
Journal of International Business Studies
Economic impact of COVID-19 across national boundaries Omrane Guedhami et al.
1280
markets, and the economy is not only obvious but just under 1.4 billion. Correspondingly, by August
critical, as governments and business leaders strug- 2021, for example, only 1.2% of the SSA population
gle to stave off widespread business failures. Our was vaccinated (Miguel & Mobarak, 2021). The
goal here is, therefore, to stimulate innovative potentially adverse effect of millions of people
research that will generate new theoretical and remaining unvaccinated will unfortunately be
empirical insights into the effects of twin health globalized. As we note, no one is spared.
and economic crises on – and the resilience of –
firms, investors, and markets around the world.
GOVERNMENT RESPONSES AND POLICY
INDICATORS
A COMMON PROBLEM WITHOUT A COMMON The rapid spread of COVID-19 fueled an extraordi-
SOLUTION nary range of initial responses from governments
The COVID-19 pandemic has strongly reinforced worldwide. To contain the toll from infections and
awareness of global interconnectedness. The effect deaths, many governments responded by locking
of the pandemic has spared no one. In fact, low- down economic activities and mobility. According
income countries, particularly those in Sub-Saharan to the IEA Global Energy Review, in April 2020,
Africa (SSA), were hit hard economically even about 4.2 billion people, or 54% of the global
before the virus appeared on their shores (Heitzig population, representing almost 60% of global
et al., 2021). This premature impact was a conse- GDP, were subject to full or partial lockdowns.
quence of openness and globalization. Notably, SSA Measures included travel bans, closures of educa-
economies are dependent on trade with higher- tional institutions, bans on public gatherings, the
income countries (particularly the US, the EU, and institution of contact tracing, restriction of access
China), as well as on foreign direct investments and to workplaces, etc. Simultaneously, governments
remittance flows. Thus, economic shocks traveled implemented stimulus packages and innovative
from high-income to low-income countries prior to social safety nets to mitigate the enormous conse-
the transmission of the virus itself (Ramelli & quences of these actions on economic and health
Wagner, 2020). Some firms and industries were livelihood associated with the unprecedented slow-
likewise impacted ahead of any confirmed cases down in economic activities, including job losses.
among their employees due to economic linkages Such drastic measures also included necessary
with other regions. emergency investments in healthcare facilities.
Given this unprecedented and universal chal-
lenge, a reasonable expectation might be that The Government Response Tracker
policies and government responses would be glob- The extent and heterogeneous nature of govern-
ally coordinated to assure aggregate global social ment responses to the pandemic fueled equally
welfare. Unfortunately, political economy consid- rapid responses from knowledge producers to sys-
erations, sociocultural differences, and free rider- tematically track them. In particular, researchers at
ship, as well as short-sightedness, have hindered an the Blavatnik School of Government at the Univer-
effective global response to the virus (see, e.g., Oh sity of Oxford launched a comprehensive tracker,
& Oetzel, 2022). the Oxford Coronavirus Government Response
Chief among the remarkable achievements since Tracker (OxCGRT). Below, we provide the key
the beginning of the pandemic has been the record- features of this extremely valuable global panel
breaking speed of the development and dissemina- database.
tion of vaccines. Pharmaceutical firms, such as OxCGRT is continuously updated and provides
BioNTech, Moderna, Pfizer, and SinoVac, produced readily usable and comparable information on a
highly effective vaccines and treatments in record variety of government policy measures and inter-
time. Nevertheless, regarding delivery and distribu- ventions. A systematic set of cross-national and
tion, glaring disparities surfaced between high- and longitudinal measures has been compiled from 1
low-income countries. Mass distribution of vacci- January 2020 onwards. The response tracker focuses
nes occurred in high-income countries, but it was on countries but also offers information on sub-
too little and slow in low-income countries. Indeed, jurisdictions. It captures government policies or
by July 2021, just over 50 million doses had been responses for about 180 countries, which are
supplied to Africa for a population estimated to be recorded in ordinal or continuous scales for 19
Journal of International Business Studies
Economic impact of COVID-19 across national boundaries Omrane Guedhami et al.
1281
stringency of government response between March
2020 and December 2021.
Positive Externalities of the Tracker
Transparency, comparability, and legibility are
emphasized in the design of OxCGRT. It provides
open access data in a user-friendly and time-series
format. The project is a vital resource for research
aimed at enhancing our knowledge of the wide-
ranging economic and social effects of the pan-
demic. Equally important, it has a distinct potential
to generate and promote evidence-based economic
Figure 1 Diversity in government response to the COVID-19 and social policies, i.e., those not guided by
pandemic. This figure is a heatmap using data for the Stringency heuristics. Thus, the tracker provides a significant
Index between March 2020 (the inception of the pandemic) and
positive externality with regard to knowledge gen-
December 2021. Data from the Oxford Coronavirus
eration and policymaking regarding this epic crisis
Government Response Tracker (OxCGRT) were collected by
researchers at the Blavatnik School of Government at the of our time. In fact, it is already being used in a
University of Oxford. OxCGRT defines the Stringency Index as variety of disciplines to answer the burning ques-
the strictness of ‘lockdown style’ policies that governments tions surrounding the pandemic. Published exam-
instituted to affect the behavior of its citizens in an effort to ples include Nelson (2021) and Liu, Shahab, and
contain the virus. The index is the average of all of OxCGRT’s Hoque (2022).
ordinal containment and closure policy indicators, plus an
indicator recording public information campaigns. (Source: Quick Observations
https://www.bsg.ox.ac.uk/research/covid-19-government- Several notable observations emerge from the
response-tracker).
tracker data. The early days of the pandemic
showed remarkable commonality in government
policy responses around the globe, led by China
and the more advanced economies. It appears that
policy areas. These policies and interventions are countries were learning from neighbors, in a
provided daily for a standardized series of indicators. version of herding behavior. March 2020, for
This dataset provides an opportunity for example, showed remarkable clustering.
researchers and policymakers to investigate the The clustering dissipated in later months as
impact of government policy responses on the government responses diverged. Countries moved
containment and prevention of the pandemic, as at different speeds to implement policy responses.
well as its impact on economic and social welfare. A prominent example is enacting travel restric-
The data have considerable flexibility and allow tions, which varied widely. For instance, the US
groupings of policy responses under broader cate- banned visitors from certain countries, while
gories. One example of these groupings is found in Argentina and India closed their borders altogether.
the three classes of response policies: containment Thus, in general, there has been no uniformity in
and closure; economic; and health systems. Indi- policies or their implementation. Even when poli-
cators for containment and closure include school cies exhibited similarities, they still varied substan-
closures, workplace closures, bans on public events, tially in stringency. China has offered the most
restrictions on gathering sizes, public transport extreme example of policy divergence, in that it
closures, stay-at-home requirements, restrictions was still enforcing a ‘‘Zero-COVID’’ lockdown pol-
on internal movement and gatherings, and restric- icy in late 2022, even as almost all other countries
tions or bans on international travel. Similarly, have moved to ‘‘living with’’ COVID as an endemic
economic policy indicators include income sup- – rather than pandemic – disease.
port, household debt relief, and a variety of fiscal Likewise, countries varied in terms of their suc-
measures. Health policy-related indicators include cess in limiting the spread of the virus and
contact tracing, public information campaigns, preventing deaths. These differences are generally
investments in healthcare and facilities, and invest- attributable to differences in policies (Hale et al.
ments in vaccine resources. Figure 1 provides a heat 2020). In fact, there is evidence that lower govern-
map that illustrates the diversity in the overall ment stringency and slower response times have
Journal of International Business Studies
Economic impact of COVID-19 across national boundaries Omrane Guedhami et al.
1282
been associated with more deaths, attesting to the levels as firms conserved cash to withstand the
positive value proposition for non-pharmaceutical economic fallout from the pandemic. Access to
government responses. The flip side of this, how- capital was clearly a key factor in the ability of firms
ever, is that the lasting economic damage of to survive the dramatic shocks to demand and
government policy responses also seems to be supply, and to maintain their essential approach to
positively related to their severity. conducting business (Guedhami et al., 2022).
However, there is some evidence that the adverse
economic impact of the pandemic varied with the
ECONOMIC CONSEQUENCES OF GOVERNMENT stringency and efficiency of government responses
POLICY (Duan et al., 2021; Gormsen & Koijen, 2020;
In reality, the pandemic is a triple shock phe- Guedhami et al., 2022). Table 1 provides evidence
nomenon: supply shock, demand shock, and finan- consistent with this. Using the OxCGRT, we show
cial shock. And to that we can add one more: public that average economic indicators, such as exports
health shock. Hence, the scale of the aggregate shock to GDP and imports to GDP, are significantly less
is unprecedented (Triggs & Kharas, 2020). Almost for countries with greater-than-median responses
overnight, the entire globe faced great challenges relative to those that have less-than-median
that called for ‘‘outside the box’’ responses. responses. Average GDP per capita for countries
The economic consequences of the rapid spread of with greater-than-median responses was likewise
COVID-19 and the resulting government responses lower, albeit not significantly so. It is noteworthy,
have been wide-ranging and felt across labor, capital, however, that impacts on GDP per capita can take
and financial markets, as well as by firms and some time to be felt. Lockdowns and containment
households. Central to these responses are disrup- measures were shown to be strictest in China,
tions in supply chains and the stringency of mea- India, and Italy. The economies of these countries
sures such as lockdowns and social distancing. These witnessed sharp declines, but later rebounded quite
measures, beginning in March 2020, had the desir- well. In fact, the Chinese economy experienced
able outcome of driving down virus infection rates. 2.3% growth by the end of 2020, relative to 2019
However, they also had the undesirable effect of (Crossley & Yao, 2021). It is interesting to note that
contributing to severe economic slowdowns (see, the early projections of economic contractions
e.g., König & Winkler, 2021). Although these were so dire, in part because of the uncertainty
slowdowns were ultimately short-lived, their over vaccine development. Countries that devel-
impacts were far reaching and profound in the oped vaccines and used them efficiently saw their
earlier months of the pandemic. In particular, the economies recover, particularly in 2021. These
consumer services industry was adversely affected included the US, UK, Israel, and China.
by the demand shock caused by quarantines and In contrast with the few countries that recovered
business closures, and the resulting unemployment quickly, however, the global economic picture at
(Bartik, Bertrand, Cullen, Glaeser, Luca, & Stanton, the end of 2020 remained somewhat grim. The
2020). Moreover, lockdowns and social distancing early projections by international financial institu-
greatly impaired the ability of firms to produce tions were ominous. The World Bank forecasted a
goods and services (Brinca, Duarte, & Faria-e-Cas- 5.2% decline in global GDP in 2020 relative to
tro, 2020), which led to an economic recession of a 2019. The OECD’s forecast was even worse: a
magnitude not witnessed in the modern era. In the decline of between 6 and 7.6%, depending on the
US, according to the National Bureau of Economic emergence and severity of COVID-19 variants. The
Research, the economy recorded its steepest quar- IMF was somewhat less pessimistic, with a pro-
terly drop in GDP on record, a decline of 32.9% in jected decline in global GDP of 4.4%. This was
the second quarter of 2020 (Bauer, Broady, Edel- influenced partly by advanced countries lifting
berg, & O’Donnell, 2020). Firms responded with lockdowns and putting into place unprecedented
record-breaking capital issuance. Corporations fiscal and monetary responses and a variety of
raised almost US$10 trillion in new stock and bond stimulus packages.
issuances in 2020, with almost $1 trillion in stock Ultimately, the global decline in GDP for 2020
alone. This is vastly higher than the previous record was not far from these projections. It declined by
of $8.5 trillion. In fact, the US alone issued just about 4% in 2020 (IMF, 2020), far larger than
under $2.5 trillion. Correspondingly, share repur- corresponding annual declines in past decades
chases in 2020 fell dramatically from pre-pandemic (IMF, 2020). This is in contrast to the 2% global
Journal of International Business Studies
Economic impact of COVID-19 across national boundaries Omrane Guedhami et al.
1283
Table 1 Stringency of government response and economic indicators
Country GSI Ln(GDPpc) Exports/ Imports/ Country GSI Ln(GDPpc) Exports/ Imports/
GDP GDP GDP GDP
High stringency countries Low stringency countries
Albania 55.20 8.58 0.23 0.37 Afghanistan 41.49 6.25
Algeria 60.13 8.10 0.18 0.28 Andorra 38.22 10.53
Angola 58.33 7.40 0.38 0.19 Aruba 45.17 10.06 0.57 0.73
Argentina 71.37 9.06 0.17 0.14 Austria 47.07 10.79 0.51 0.49
Australia 55.85 10.85 0.24 0.20 Barbados 45.28 9.70 0.30 0.37
Azerbaijan 65.48 8.35 0.36 0.36 Belarus 24.92 8.79 0.61 0.58
Bahamas 63.40 10.11 0.25 0.34 Benin 37.84 7.16 0.20 0.25
Bahrain 55.19 9.92 0.73 0.67 Bermuda 45.51 11.59 0.50 0.22
Bangladesh 66.01 7.73 0.10 0.16 Bosnia and Herzegovina 46.82 8.71 0.35 0.48
Belgium 51.22 10.72 0.80 0.79 Brunei 38.32 10.22 0.57 0.53
Belize 57.69 8.29 0.44 0.56 Bulgaria 41.09 9.22 0.55 0.54
Bhutan 63.93 8.01 0.30 0.46 Burkina Faso 36.08 6.75
Bolivia 67.20 8.05 0.20 0.25 Burundi 11.84 5.45 0.05 0.22
Botswana 50.93 8.76 0.31 0.46 Cambodia 44.18 7.34 0.61 0.62
Brazil 57.37 8.83 0.17 0.16 Cameroon 42.07 7.34 0.15 0.18
Canada 55.79 10.67 0.29 0.31 Central African 39.56 6.18 0.15 0.34
Cape Verde 58.28 8.03 0.25 0.60 Cote d’Ivoire 38.36 7.75 0.22 0.20
Chad 54.59 6.48 0.27 0.42 Croatia 43.31 9.56 0.42 0.49
Chile 62.67 9.49 0.32 0.27 Czech Republic 44.78 10.04 0.71 0.64
China 68.27 9.25 0.19 0.16 Democratic Republic of the 44.39 6.30 0.29 0.30
Congo
Colombia 63.19 8.58 0.13 0.20 Denmark 45.65 11.02 0.55 0.48
Congo 51.62 7.55 Djibouti 46.23 8.08 1.16 1.07
Costa Rica 54.39 9.41 0.32 0.29 Dominica 37.05 8.85
Cuba 60.61 9.16 0.08 0.08 Eritrea 0.00
Cyprus 53.17 10.23 0.76 0.78 Estonia 36.38 10.05 0.71 0.71
Dominican 63.24 8.89 0.18 0.26 Faeroe Islands 33.13 11.10 0.48 0.49
Republic
Ecuador 58.91 8.64 0.22 0.20 Fiji 50.17 8.54 0.27 0.43
Egypt 53.74 8.18 0.13 0.21 Finland 38.73 10.80 0.36 0.36
El Salvador 63.59 8.24 0.26 0.44 Ghana 41.69 7.72 0.21 0.18
Eswatini 56.22 8.14 0.45 0.42 Greenland 34.61 10.91 0.36 0.49
Ethiopia 56.48 6.84 0.07 0.17 Guam 0.00 10.45 0.06 0.58
France 54.29 10.57 0.28 0.30 Haiti 45.09 7.15 0.08 0.30
Gabon 61.89 8.84 0.48 0.23 Hungary 48.48 9.69 0.79 0.77
Gambia 52.81 6.63 0.08 0.38 Iceland 39.40 10.99 0.34 0.35
Georgia 59.76 8.36 0.37 0.57 Iran 48.18 7.92 0.21 0.26
Germany 51.81 10.74 0.43 0.38 Japan 32.57 10.59 0.16 0.16
Greece 54.51 9.78 0.32 0.40 Kiribati 19.35 7.32
Guatemala 64.05 8.43 0.17 0.25 Laos 34.97 7.87
Guinea 52.02 6.98 0.59 0.41 Latvia 42.08 9.78 0.60 0.59
Guyana 61.80 8.85 Lesotho 48.99 6.96 0.40 0.88
Honduras 71.77 7.79 0.35 0.51 Liechtenstein 43.43
Hong Kong 55.32 10.74 1.76 1.74 Lithuania 43.68 9.92 0.74 0.64
India 66.23 7.57 0.19 0.19 Luxembourg 42.73 11.66 2.05 1.72
Indonesia 54.65 8.26 0.17 0.16 Macao 29.51 10.58 0.62 0.59
Iraq 64.68 8.43 0.27 0.29 Madagascar 47.81 6.17 0.21 0.30
Ireland 56.54 11.36 1.31 1.09 Malawi 45.18 6.46
Israel 58.05 10.70 0.28 0.23 Mali 39.93 6.76 0.31 0.36
Italy 64.67 10.37 0.30 0.26 Malta 45.75 10.27 1.49 1.37
Jamaica 63.99 8.45 0.24 0.41 Mauritania 39.17 7.44 0.40 0.51
Jordan 58.29 8.36 0.24 0.42 Mauritius 29.82 9.06 0.30 0.49
Kazakhstan 64.21 9.12 0.30 0.26 Namibia 43.54 8.33 0.33 0.43
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Economic impact of COVID-19 across national boundaries Omrane Guedhami et al.
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Table 1 (Continued)
Country GSI Ln(GDPpc) Exports/ Imports/ Country GSI Ln(GDPpc) Exports/ Imports/
GDP GDP GDP GDP
Kenya 57.86 7.53 0.10 0.18 Netherlands 49.96 10.87 0.78 0.67
Kuwait 65.68 10.12 New Zealand 36.52 10.64 0.22 0.22
Kyrgyz Republic 58.73 7.08 0.31 0.52 Nicaragua 12.47 7.55 0.42 0.47
Lebanon 59.42 8.24 0.28 0.59 Niger 23.91 6.34 0.10 0.26
Liberia 54.41 6.40 Norway 41.73 11.12 0.32 0.33
Libya 70.57 8.94 Papua New Guinea 42.56 7.92
Malaysia 55.87 9.25 0.61 0.55 Poland 47.84 9.66 0.56 0.49
Mexico 57.39 9.04 0.40 0.38 Puerto Rico 0.00 10.36
Moldova 52.68 8.42 0.27 0.50 Romania 49.95 9.47 0.37 0.41
Monaco 55.25 12.07 Russia 49.33 9.23 0.26 0.20
Mongolia 59.54 8.31 0.58 0.55 San Marino 41.64 10.73 1.64 1.40
Morocco 61.82 8.03 0.35 0.43 Senegal 41.32 7.29 0.21 0.39
Mozambique 51.60 6.11 0.30 0.73 Serbia 49.40 8.95 0.48 0.57
Myanmar 62.44 7.28 0.29 0.26 Seychelles 31.87 9.41 0.77 1.00
Nepal 65.91 7.05 0.07 0.34 Sierra Leone 35.85 6.23 0.15 0.36
Nigeria 54.15 7.65 Singapore 48.54 11.01 1.82 1.50
Oman 63.46 9.58 0.44 0.37 Slovak Republic 45.51 9.87 0.85 0.85
Pakistan 54.51 7.21 0.09 0.17 Slovenia 50.02 10.15 0.78 0.69
Palestine 66.28 8.08 0.15 0.52 Solomon Islands 31.13 7.72 0.28 0.36
Panama 63.87 9.43 0.40 0.34 Somalia 34.20 6.08 0.17 0.84
Paraguay 62.27 8.51 0.34 0.29 South Korea 49.43 10.36 0.36 0.33
Peru 67.47 8.72 0.22 0.21 Sri Lanka 47.44 8.21 0.16 0.23
Philippines 65.83 8.10 0.25 0.33 Sudan 50.19 6.42 0.00 0.00
Portugal 54.25 10.01 0.37 0.39 Sweden 49.01 10.86 0.45 0.40
Qatar 60.76 10.82 0.49 0.41 Switzerland 42.29 11.37 0.62 0.54
Rwanda 61.23 6.67 0.19 0.36 Syria 49.51
Saudi Arabia 57.21 9.91 0.26 0.26 Tajikistan 37.36 6.75 0.17 0.38
South Africa 54.27 8.64 0.28 0.23 Tanzania 23.23 6.98 0.14 0.15
South Sudan 53.13 Thailand 46.01 8.88 0.52 0.46
Spain 56.27 10.21 0.31 0.29 Timor-Leste 31.83 7.27 0.69 0.94
Suriname 58.93 8.50 Togo 46.83 6.82 0.23 0.32
Trinidad and 59.52 9.63 Tonga 40.21 8.44 0.19 0.62
Tobago
Turkey 53.61 9.05 0.29 0.32 Tunisia 44.53 8.19 0.38 0.46
Uganda 61.08 6.71 0.15 0.22 Turkmenistan 40.81
Ukraine 53.14 8.23 0.39 0.40 UAE 50.41 10.50 0.93 0.69
United Kingdom 56.91 10.62 0.28 0.28 US Virgin Islands 0.00 10.59 0.39 0.76
United States 56.16 11.05 0.10 0.13 Uruguay 40.20 9.64 0.25 0.21
Venezuela 68.00 Uzbekistan 50.85 7.47 0.24 0.38
Vietnam 57.74 8.17 Vanuatu 34.55 7.98 0.17 0.44
Zimbabwe 60.82 7.10 0.37 0.39 Yemen 31.51 6.45 0.06 0.45
Zambia 39.02 6.89 0.47 0.33
Average 59.29 8.73 0.33 0.38 38.90 8.78 0.46 0.52
Difference (High–Low) 0.83 0.01 0.00
GDP decline during the 2009 recession. In fact, by employment fell by 20.5 million in April 2020
some estimates, the COVID-19 pandemic resulted alone [Bureau of Labor Statistics (BLS), 2020]
in the largest global economic decline since the which, according to BLS, was the largest monthly
Great Depression (IMF, 2020). At the same time, the drop since the Current Employment Statistics first
pandemic wiped out jobs. In the US, total non-farm recorded employment figures in 1939.
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Furthermore, although the pandemic and associ- government support to households and businesses.
ated economic shutdown created a crisis for all It included stimulus checks for households based
workers, it was most deleterious for women, non- on income, expanded eligibility for unemployment
white workers, lower-wage earners, and less-edu- insurance, tax refunds, food assistance, student
cated workers. loan forbearance, and suspensions of foreclosures
At a microlevel, the pandemic had an adverse and evictions. Empirical evidence shows positive
economic impact on firms and industries, but outcomes from this extensive government support
differentially. Globally, the most dramatic industrial for households and the unemployed in terms of
sector ‘‘losers’’ were aerospace and airlines, which increased spending and economic growth (Casado,
prompted some rich governments to sponsor bail- Glennon, Lane, McQuown, Rich, & Weinberg,
outs of these industries. According to Davis, Hansen, 2021).
and Seminario-Amez (2021), other ‘‘losers’’ were A particularly innovative program in the CARES
firms whose performance depended on the sale of Act was support for the protection of payroll at
products or services normally consumed when peo- small businesses. The Paycheck Protection Program
ple are commuting to work, shopping, or vacation- (PPP) initially allocated $349 billion for loans to
ing. Examples include brick-and-mortar retail, small businesses (Hamilton, 2020). An added fea-
energy supply, residential construction, hospitality, ture was that the loans would be forgiven condi-
real estate investment trusts, and restaurants. More tional on businesses retaining workers, hence
generally, firms across many industries were also protecting employment. This very popular and
severely affected by supply chain disruptions. As of initially oversubscribed program provided critical
this writing (November 2022), many are still suffer- support for small businesses in the early months of
ing, and the end of such disturbances remains the pandemic (Hamilton, 2020).
uncertain. This significant lingering effect of the The PPP grabbed the attention of economic
pandemic has contributed to elevated inflation rates researchers. Empirical evidence has been somewhat
in many countries, and is causing firms to reconsider mixed on how well it worked to preserve employ-
how and where they source key inputs to the ment. It seems that the most established small
products they sell. We speak to these effects later. businesses, particularly those offering professional
Of course, there were ‘‘winners’’ too, particularly as well as scientific and technical services, ulti-
technology firms – such as Amazon, Microsoft, and mately received the largest share of PPP loans
Zoom – and vaccine producers such as Pfizer and (Humphries, Neilson, & Ulyssea, 2020). There is
Moderna. Other ‘‘winners’’ were firms selling items less evidence of an employment retention effect for
and services that consumers use at home, such as relatively low-wage earners (Chetty, Friedman,
basic foodstuffs, video games, and web-based ser- Hendren, Stepner, & the Opportunity Insights
vices, and firms that provide cloud computing, Team, 2020). Another issue was an access gap
electrical equipment, and semiconductors. created because private banks served as intermedi-
aries for the disbursement of government PPP loans
Social Safety Net and Stimuli (Granja, Makridis, Yannelis, & Zwick, 2022). Busi-
Many governments worldwide, including those of nesses with pre-existing relationships with these
low-income countries, executed stimulus packages banks were more likely to obtain rapid disburse-
and strengthened social safety nets to protect firms ment of funds (Bartik et al., 2020).
and households alike against pandemic-related
shocks. In the US, for example, the fiscal policy
response took two main forms: support to small FINANCIAL MARKET IMPACT OF
businesses and support to households, focusing on GOVERNMENT RESPONSES
the unemployed. This led to a massive package of
emergency legislation, the Coronavirus Aid, Relief,
Stock Market Reaction: ‘‘Fear of the Unknown’’
When COVID-19 first surfaced, there was little
and Economic Security Act (CARES) Act (March
information about its evolution and consequences.
2020), which provided direct support totaling
Put differently, we did not know what we did not
hundreds of billions of dollars to businesses and
know. There is an interesting early exploratory
households.
study that uses the theory of market fear. Heuris-
Along with the Families First Coronavirus
tically, this theory suggests that the market overre-
Response Act (March 2020), the CARES Act pro-
acts, and then corrects itself over time with new
vided an unprecedented, albeit temporary, level of
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information as we learn more about what we do not supply chains, R&D, physical capital) of the cross-
know. Phan and Narayan (2020) identify 25 coun- country scope of the firm (Gande, 2009). Drawing
tries most affected by COVID-19 in terms of on IB and international finance theories (e.g.,
infections and deaths, and study their stock market Berger, El Ghoul, Guedhami, & Roman, 2017;
reactions to government responses. Berger & Ofek, 1995; Denis, Denis, & Yost, 2002;
Admittedly, their study is descriptive and Errunza & Senbet, 1981, 1984), the authors identify
exploratory. It is not an econometric analysis, nor the costs and benefits of internationalization and
even an event study. However, in the earliest days argue that the value of multinationality depends on
of the pandemic, when little was known, this study the aggregate impact of four theories: imperfect
provided a useful foundation for further analysis. global capital markets theory, internalization theory,
Examining the stock market reactions in 25 coun- managerial objectives theory, and industrial diversifi-
tries, they find some interesting patterns. The cation discount theory. Importantly, they propose
landmark event was the date the World Health that extreme shocks, such as COVID-19, can alter
Organization (WHO) declared COVID-19 a pan- the trade-off between the benefits and costs of
demic (March 11, 2020); 24 of the 25 stock markets multinationality. Their evidence indicates a signif-
reacted negatively, with a range of –0.10% (Turkey) icant valuation gap favoring domestics during the
to –7.95% (Brazil). onset of the pandemic. This ‘surprising’ evidence
This result is obviously an aggregate picture, but suggests that the pandemic sharply reduced the
it is instructive to look at the stock market reactions benefits of internationalization, mainly by restrict-
to specific government responses, such as ing access to real factors – an upside of globaliza-
announcements of travel bans, stimulus packages, tion. This valuation gap was observed in regions
and lockdowns. With respect to travel bans, 12 of worldwide (see Figure 2). The effect underscores
the 25 stock markets (France, Germany, UK, China, one of the darker sides of financial globalization,
Turkey, Belgium, Netherlands, Switzerland, Portu- which came to light in the wake of COVID-19.
gal, India, Sweden, and Poland) registered a positive Do government responses matter to this MNC
effect on the announcement day, with a range of valuation gap? Extending the base case analysis by
0.26–5.01%. For 6 of the remaining 13 countries, exploring differences in government responses in
the effect for travel bans was less negative than for scope and strength suggests that they do. The gaps
the WHO COVID-19 declaration. Collectively, this vary across countries based on the relative strengths
suggests that travel bans were either perceived as and stringency of the responses to COVID-19. In
beneficial, in about 75% of the countries, or their particular, during the crisis period, the gap between
imposition was partially anticipated – yielding a MNCs and their counterpart DCs widened with the
muted announcement-period market response. The strength of government responses. However, the
authors suggest that, for some of the remaining effect is not one-size-fits-all when it comes to
countries, the travel bans may have been too late. response type. Guedhami et al. (2022) find that
Finally, lockdowns and stimulus package certain responses had more pronounced effects,
announcements resulted in positive stock market e.g., school and workplace closures, restrictions on
reactions for 7 and 11 countries, respectively. public gatherings, and international travel. Their
findings suggest that the stringency of government
Market Impact of Government Responses response is partly responsible for the real factors
and Multinationality (e.g., international supply chains) becoming a
Guedhami et al. (2022) use the COVID-19 shock to liability during the pandemic crisis.
revisit a longstanding question in the IB and Overall, the findings of Guedhami et al. (2022)
finance literature, namely, the value of multina- imply a dark side associated with globalization
tionality specifically during crisis periods. Their during a tail risk event. These novel findings from a
study focuses on the relative valuation effect of the twin crisis setting, economic and healthcare, chal-
pandemic between multinational corporations lenge a large theoretical and empirical literature on
(MNCs) and their comparable domestic counter- the positive valuation impact of internationaliza-
parts (DCs) based on cross-country stock market tion (e.g., Errunza & Senbet, 1981, 1984; Gande
data and government responses from around the et al., 2009; Mansi & Reeb, 2002), including during
globe. The authors argue that multionationality the 2008–2009 financial crisis period (e.g., Chang,
contributes to firm value through financial (e.g., Kogut, & Yang, 2016; Mihov & Naranjo, 2019). The
access to foreign markets) and real aspects (e.g., evidence suggests that the valuation effects of
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Figure 2 MNC and DC value by region before, during, and after COVID-19.
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multinationality can be reversed during a tail event Regionally, the direct and indirect effects of the
of the pandemic proportion. While the interna- pandemic resulted in a 1.9% contraction in GDP
tionalization discount during the COVID-19 pan- (IMF, 2020) for Africa. This was attributable to the
demic does not appear to be temporary, because combined effects of shocks to trade volume, service
MNCs do not fully recover in the post-crisis period industries such as airlines and aerospace, tourism
(Guedhami et al., 2022), the findings warrant more and hospitality industries, remittance flows, and
research on the factors contributing to the resi- disruptions to supply chains. Because China is the
lience of MNCs during unexpected tail events and largest trading partner of Africa, the decline in
their implications on the theory and empirics of Chinese exports resulted in shortages of basic
internationalization. consumer goods. This was particularly damaging
to vulnerable consumers and small-time traders,
who make up the lowest-income segments of the
DIFFERENTIAL IMPACT AND LOW-INCOME economy.
COUNTRIES: THE CASE OF AFRICA As for exports, crude oil already faced a huge
The adverse economic impact of COVID-19 on demand shock prior to the pandemic. However,
businesses and households across low-income COVID-19 led to a 39% decline in demand during
countries has been immense. This Research Note April 2020 from the pre-pandemic levels (Heitzig
takes a particular look at the low-income countries et al., 2021). Therefore, oil exporting SSA countries
in SSA. Here is the context. Often the dark side of – Nigeria, Cameroon, Angola, Chad, Gabon, Repub-
Africa crowds out any positive news in interna- lic of Congo, and Equatorial Guinea – were hit
tional media. Yes, African countries face enormous badly. African countries are, however, cross-sec-
economic and social challenges, but, on the bright tionally diverse in terms of products for external
side, prior to the pandemic SSA they registered trade, so not everyone was hurt by the price
sustained growth over 25 years, with seven econo- declines that accompanied the demand shock.
mies among the fastest growing in the world. This Indeed, oil-importing countries enjoyed a windfall
is not accidental but the product of years of massive from price declines. Moreover, gold-exporting
reforms of both real and financial economies in countries saw increases of as much as 30% in the
Africa. Moreover, global partnerships, including price of their primary export.
those with China, the EU, and the US, were at the In recent years, there has been good news in SSA
center of the African growth renaissance. In fact, in the area of remittance flows. They have become
prior to the pandemic, Africa had emerged as a key the largest source of international capital flows,
player in the global economy and was receiving ahead of foreign direct investment and official
increasing attention for mutually beneficial eco- development assistance. It is striking that remit-
nomic partnerships. The recent advent of the tances into developing economies have remained a
African Continental Free Trade Area, the largest stable source of capital flows, despite shrinkages in
trading bloc in the world in terms of the number of other categories (World Bank, 2021). Indeed, remit-
member countries, was a key development. It tances continued to grow by about 2.3% per year
ushered in a new era of trade and regional integra- during the pandemic in SSA (Heitzig et al., 2021).
tion – and further integration into the global Overall, it is gratifying that remittances have
economy (Eabisa, 2020). remained stable, even growing, at this critical
Enter COVID-19. After a slow start, the pandemic juncture.
spread rapidly through the continent. The adverse Finally, while tourism and hospitality are a vital
economic consequences were felt immediately, source of economic growth for many countries in
mainly due to economic spillovers from shocks to SSA, this sector was damaged badly by the pan-
Africa’s main trading partners. For example, the demic. In particular, for island states, such as
livelihoods of Ethiopian garment workers were Mauritius and the Seychelles, tourist arrivals dwin-
negatively impacted by a sharp decline in global dled to a fraction of their pre-pandemic levels. This
demand for their products. This happened despite was particularly detrimental for employment, as
relatively few COVID-19 cases and soft lockdown tourism is the largest source of jobs. African airlines
policies in Ethiopia (Meyer, Prescott, & Sheng, with a global reach – including Ethiopian Airlines,
2022). South African Airways, and Kenya Airways – were
also immediately hit by COVID-19 travel
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restrictions and border closures. In March 2020 World Bank’s Debt Service Suspension Initiative
alone, African airlines lost $4.4 billion in revenue. (DSSI) called for a moratorium on debt repayments
to participating bilateral creditors through Decem-
Shrinking Fiscal Space and Debt Burden: How Has ber 2020 (later extended through December 2021;
the World Responded? see World Bank, 2021). Of the world’s 73 eligible
The pandemic shocks to the economies of low- low-income countries, 38 are in Africa.
income countries in Africa, and the government We next provide a summary of the various
expenditures in response to these crises, led to large response initiatives. On April 1, 2021, the Common
revenue shortfalls (Heitzig et al., 2021). After the Framework for Debt Treatment beyond DSSI went
initial shocks, it turns out that the pandemic had into effect. It builds on DSSI by creating a frame-
spared SSA from the high levels of infection and work to handle debt treatments on a case-by-case
death seen in other regions of the world. As of April basis and engage the private sector on terms as
2021, SSA accounted for just 3% of the world’s cases favorable as official creditors. Details are provided
and 4% of its deaths. One theory that explains the in Table 2.
low level of cases/deaths is based on SSA’s popula-
tion – the youngest worldwide – as well as the rapid
and pre-emptive lockdowns and restrictions put in ECONOMIC AFTERMATH AND OTHER GLOBAL
place in March 2020. However, government FACTORS
responses amplified the dwindling revenue and Ultimately, the adverse economic shocks were not
fiscal space stemming from the economic shocks, as as long-lasting as first feared. Some countries,
discussed earlier. On average, SSA economies col- particularly the US, witnessed dramatic economic
lected 13.6% less revenue than projected in 2020 recoveries, fueled largely by government fiscal
(Heitzig et al., 2021). The pandemic ended up support, stimulus packages, and widespread vacci-
amplifying the revenue loss. This deteriorating nation, which opened up economies with pent-up
fiscal space greatly contributed to debt vulnerabil- demand for in-person services. The economic
ities by impairing the capacity for debt servicing. It rebound worldwide far exceeded expectations,
turns out that, pre-pandemic, many African coun- based on Congressional Budget Office (2021) data.
tries were already on the verge of a debt crisis. Unfortunately, this remarkable recovery has been
Another positive development in recent years has accompanied by rising inflation. The economy of
been that many African countries have begun the US, for example, surpassed its pre-pandemic
accessing international credit markets (e.g., Euro- level of GDP in the second quarter of 2021. It was
bonds issuance and syndicated bank loans) at arm’s the first country in the G-7 to recoup all the real
length. Therefore, they were able to access diverse GDP lost to the pandemic. A comparative picture of
sources of external borrowing. China has become the change in GDP between 4th quarter 2019 and
by far the largest bilateral creditor of the region. 3rd quarter 2021 for all G-7 countries is shown in
One of the most troubling issues, however, is Table 3.
that, at the onset of the pandemic, 9 countries were The economic recovery has been uneven across
already in debt distress and 11 faced high distress sectors and countries. Employment creation
risk (IMF, 2020). Heitzig et al. (2021) find that the remains weak in low-income countries, even lower
pandemic worsened the African debt situation. than pre-pandemic projections (United Nations,
Using the IMF projections, they find that SSA 2022). In fact, according to Liu Zhenmin, Under-
experienced a 4.5% increase in ‘‘pandemic debt’’ – Secretary-General of the UN’s Department of Eco-
the uptake of debt beyond IMF projections. The nomic and Social Affairs, ‘‘the pandemic will con-
associated debt servicing costs imposed huge pres- tinue to pose the greatest risk to an inclusive and
sure on SSA countries, already at the mercy of sustainable recovery of the world economy’’ (Uni-
dwindling public finances, as discussed earlier. How ted Nations, 2022). Moreover, the monetary policy
have the international partners of SSA responded to responses in advanced economies in response to
the unsettled African debt situation? The IMF, rising inflation, and hence rising interest rates, are
World Bank, African Development Bank, the Afri- likely to amplify the unsustainability of external
can Union (AU), and the G-20 all responded by debt burdens of low-income countries.
mitigating the debt-related costs and risks facing The war in Ukraine adds to the many headwinds.
low-income countries, including those in SSA. The Apart from the humanitarian crisis and destruction
G-20 includes an African country, South Africa. The of infrastructure, it has greatly amplified fuel and
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Table 2 Responses from bilateral and multilateral institutions Source: Heitzig, Ordu, & Senbet, (2021)
Institution/ Membership Instrument
organization
G-20 20 richest industrialized and emerging The Common Framework for Debt Treatments
countries Debt Service Suspension Initiative (DSSI: implemented by IMF):
debt payment moratorium owed to participating bilateral
creditors. 73 low-income countries eligible; 38 in Africa. Expired
on December 31, 2021.
IMF 190 countries The Catastrophe Containment and Relief Trust: debt relief for 23
of Africa’s poorest countries through April 2021 (totaling about
$400 million).
World Bank 189 countries Benefiting 33 African countries as part of its global financing for
health, economic, and social programs ($160 billion globally).
African Anchored in Africa; 81 member countries, Established a $10 billion COVID-19 Response Facility.
Development including non-regionals (e.g., US)
Bank
Paris Club Bilateral countries in the Paris Club: originally Partners in DSSI and Common Framework
11 countries, currently 20
China Bilateral Partner in DSSI and Common Framework
Private creditors Bilateral Free ridership; not completely on board
Table 3 GDP Growth for G-7 countries between 4th quarter 2019 and 3rd quarter 2021 Source: Center for American Progress (Jan.
2022)
Canada France Germany Italy Japan UK USA
- 1.4% - 0.1% - 1.1% - 1.3% - 1.9% - 1.5% + 1.4%
food crises around the globe, coupled with ever- The challenges facing the business world since
increasing inflation (OECD Economic Outlook, the advent of COVID-19 are unparalleled. Despite
2022). Low-income countries are particularly dev- the impressive flexibility that surviving businesses
astated by this geopolitical event. Moreover, the have shown throughout the pandemic, the storm
Ukraine crisis is likely to slow growth even in has not fully passed, even as we are entering the
advanced economies and will continue for the endemic phase of the global health crisis. Indeed,
foreseeable future (as of this writing). by some accounts, another set of challenges is just
Additional difficulties exist with supply and over the horizon. It is important to continually take
demand that will continue to pose challenges for stock of what we have learned over the past couple
households, firms, and, more broadly, govern- of years to prepare for future challenges and
ments. Climate change, for example, poses contin- opportunities.
uing threats – such as droughts, floods, and
hurricanes – that can each affect the pricing of
products, like fuel and food crops. Labor shortages IMPLICATIONS OF THE HEALTH AND
are also an ongoing problem for many industries, ECONOMIC CRISES ON INTERNATIONAL
including airlines, which are, as of this writing, BUSINESS: LESSONS AND IMPLICATIONS
struggling to keep up with demand that has The global health crisis has affected virtually every
rebounded over the summer of 2022. Finally, the business worldwide in dramatic and unforeseen
response of central banks around the world to ways. In some cases, it has altered how firms do
worrisome inflation levels has led to looming fears business, or has forced permanent changes in their
of recession. This is particularly problematic as structures.
many of the headwinds from the pandemic linger Although pandemics are rare, the COVID-19
and new threats emerge. pandemic is unlikely to be the last one, perhaps
even in our lifetime. As such, we have found it
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instructive to review how government responses information and subjectivity mid-crisis can lead to
affected firms in various industries, stages, and irrational managerial decision-making (Verbeke &
countries, and consider the hard lessons learned as Yuan, 2005).
a consequence of these responses. Some major It is with this background and context that we
industries have had their financial prospects discuss three key strategies that MNCs should
blighted, while others have been dramatically adopt.
enhanced. To ensure that history does not repeat MNCs should remain flexible: Research has shown
itself, corporate leaders should explore how to that firms that can respond to changes in their
make their firms more resilient to global crises, as business environment and political uncertainty
well as government responses to them, and learn relatively quickly can benefit more from first-mover
how to excel in the face of them. advantages and temporary opportunities, and avoid
The pandemic has fundamentally changed the costly adjustments when challenges arise. Flexibil-
way many corporate leaders approach doing busi- ity in both transient and long-term crises can be
ness. Some of this is due to the nature of the attained through corporate governance (Lehn,
pandemic, and some stems from navigating gov- 2021), structural and managerial leadership adap-
ernment responses. The wisdom of some strategies tations (Kano, Narula, & Surdu, 2022), and/or
of multinational firms, such as an international through an institutional structure that allows for
supply chain (Guedhami et al., 2022), which was rapid changes in how business is conducted,
considered a hedge against country-specific or particularly online (Liu, Peng, Wei, Xu, & Xu,
regional crises, is being reevaluated based on the 2021). A case in point is Ethiopian Airlines, the
last two years. We must determine which have largest African airline with global reach. It reallo-
proven to be the best defensive strategies against cated its resources to cargo business while the bulk
COVID-induced disruptions – diversified supply of the passenger fleet was grounded in the wake of
chains, more robust supply chains (inventory COVID-19. It converted 25 passenger aircraft into
management), geographic diversification, increased cargo planes. According to the CEO, the airline
spare capacity, enhanced technology, greater cash dealt with the pandemic without seeking govern-
holdings, a combination thereof, or other policies. ment bailout, unlike other industry giants (e.g.,
In other words, how can MNCs re-strategize to Emirates). The airline benefited from its pre-COVID
ensure resilience? diversification strategy that included cargo business
An important dimension to this question is the but with the passenger business being core. This
debate regarding whether disruptions to the global pre-emptive diversification strategy allowed it to
economy and the operations of MNCs caused by move fast, not only to cope with the crisis but also
the pandemic are transient or long-lasting (Cira- to grab an opportunity to deliver COVID-19 equip-
vegna & Michailova, 2022; Contractor, 2022). The ment to about 70 destinations throughout Africa
idea is that, if these disruptions are temporary, as and beyond.
Contractor (2022) argues, then just minor adjust- MNCs should strive to optimize corporate policies to
ments to corporate strategies would be adequate. take advantage of the staggered impact of the pandemic
However, if these disruptions are the ‘new normal’, in different countries: An example of this can be seen
changes would likely be fundamental and long in AB InBev, a large multinational brewing com-
term (Buckley, 2022). A third alternative is that the pany. It was able to finance a shift in production
frequency of transient disruptions, as in natural from COVID-19 hot spots to areas with relatively
disasters, should receive long-term consideration. fewer cases, which minimized the negative impact
This big-picture outlook of repeated short-term of the pandemic. With these smart decisions about
impacts is noteworthy, since Oh and Oetzel financing, production, and sales, the company
(2022) argue that managers can plan ahead for performed better in 2021 than in 2019.
natural disasters using strategies, such as forming MNCs should reorient supply chains to make them
partnerships that can help remedy supply chain more impervious to crises that are global: The impact
disruptions, assessing areas where the firm is of the pandemic on long supply chains has revealed
particularly vulnerable in the wake of a natural unforeseen vulnerabilities in how MNCs source
disaster, establishing a natural disaster response materials or products. Whether due to entire
plan, and purchasing insurance for operational countries shutting down production facilities,
disruption. Such risk management and long-term imbalances between global demand and supply,
plans are important because incomplete or bottlenecks at ports, supply chain failures have
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been identified as a major source of firm value loss potential solutions for government leaders (Arner,
during the pandemic. According to McKinsey & Barberis, Walker, Buckley, Dahdal, & Zetzsche,
Company, the average firm loss due to supply chain 2021; Hafiz, Oei, Ring, & Shnitser, 2020).
disruptions is 42% of annual revenue. With the full extent and scale of the pandemic’s
Potential solutions include structural changes, impact on firms, global markets, and the world
e.g., closer relationships between suppliers and economy still unfolding, some finance and IB
buyers, adopting alternative suppliers, at least for scholars believe that a ‘new normal’ may be emerg-
the most critical materials, and sourcing materials ing. This new normal could lead to changes in the
from different countries (Contractor, 2022). Despite organization and configuration of MNCs (e.g., loca-
the benefits of these strategies, adopting these tion and internalization decisions) and could threa-
decisions likely also involves steep costs. The costs ten global economic integration and globalization
facing MNCs can be impacted by economies of scale, (e.g., Ciravegna & Michailova, 2022). Guedhami et al
coordination costs (multiple subsidiaries across (2022) show that relative valuations of multina-
countries, which may involve different cultures, tional versus purely domestic firms have already
labor laws, taxation, regulations, transparencies, been altered to favor the latter, although it is unclear
capital markets developments), and transportation, whether this multinational discount will be perma-
which may mean higher consumer prices. Kano et al. nent. Uncertainties about the length and depth of
(2022) further emphasize the instrumental role of the health crisis, related geo-political and economic
managerial governance adaptations in ensuring effects, and the resurgence of economic nationalism
global value chain resilience, especially when struc- and protectionism are fueling perceptions of risk and
tural reconfigurations are costly or infeasible. volatility in financial markets and corporate deci-
sion-making (e.g., Baker, Bloom, Davis, & Terry,
2020; Buckley, 2022; Ciravegna & Michailova,
CONCLUDING THOUGHTS AND FUTURE 2022). In contrast to Ciravegna and Michailova
RESEARCH IN INTERNATIONAL BUSINESS AND (2022), Contractor (2022: 163-164) argues that these
FINANCE risks appear to be marginal rather than fundamental,
The seriousness of the first global pandemic in over and can be mitigated by MNCs through more
a century, and the associated structural changes sophisticated technologies, alternative cross-border
and fractures (Buckley, 2022) in the world econ- business strategies, and better diversification of
omy, provide a fertile ground for testing existing input sources. He concludes that more globalization
theories and addressing important research ques- is needed and expected in the post-pandemic world.
tions, and hence contribute to extending the IB On the other hand, as discussed earlier, there is new
research agenda (e.g., Hartwell & Devinney, 2021; evidence documenting the dark side of globalization
Oh & Oetzel, 2022). In their insightful perspective, based on the differential valuation effects of MNCs
Oh and Oetzel (2022: 232) argue that, although and their domestic counterparts (Guedhami et al.,
natural disasters, such as the COVID-19 pandemic, 2022). The bright story from the study is that
are not new, they differ from other types of crises countries with better financial development are
and disasters along several dimensions. These more likely to weather the dark side of globalization,
include the increasing likelihood of more frequent which advocates the development of well-function-
and more impactful natural disasters (e.g., those ing financial systems in emerging and low-income
related to climate change), the potential for cas- countries.
cading disasters, and the need for MNCs to evaluate Current and future research will be an important
and mitigate their effects. The authors highlight part of identifying and amplifying the lessons
the challenges in applying core IB theories to learned during the pandemic that will help fortify
explain MNCs’ disaster risk management strategies, MNCs for crises (pandemics or otherwise) that are
and, thus, the importance of reevaluating/extend- quite likely to occur in the future (e.g., Oh &
ing the IB scholarship to account for the unique Oetzel, 2022). An abundance of papers inspired by
characteristics of natural disasters. Such work will the pandemic, both working and published, aim to
not only push the boundaries of what we know enhance our knowledge in this context. Neverthe-
about international finance and business but also less, the list of unanswered questions remains long.
potentially better guide business leaders, who right Below are some of the unexplored research ques-
now are navigating uncharted territory. Indeed, tions we recommend for future research.
some work is already focusing on developing
Journal of International Business Studies
Economic impact of COVID-19 across national boundaries Omrane Guedhami et al.
1293
Potential Research Questions on MNC Strategies need to operate in a more fractured, less globalized
in a Post-Pandemic World world. Specifically, he notes that ‘‘Whilst there is a
great deal of theory on international integration –
The short- versus long-term effects of the pandemic across nations and industries – there is little theory of
As outlined above, whether the effects of the pan- disintegration. It cannot be assumed that disintegra-
demic on the global economy are temporary or long- tion is a mirror image or inverse.’’ Contrasting these
lasting is subject to debate among IB scholars. There- two papers, Contractor (2022) argues that the effects
fore, more research is necessary in this area. of the pandemic are transient (related to the previous
• Does withstanding a pandemic require unique research theme) and that more globalization is
managerial skills for MNCs? Do CEO characteristics needed, not less. Given the lack of consensus in this
(e.g., managerial ability, generalists versus special- area of the literature, IB researchers should consider
ists, cultural heritage) affect MNC performance? how firms can navigate in a business world that may
• How has the crisis affected the correlation struc- be more segmented, either due to economic protec-
ture of global financial markets? What are the tionism or in response to (and in planning for future)
ensuing effects on the costs and benefits of diver- repeated crises, or, conversely, may be even more
sification for MNCs and international investors? globalized. Research in this area could include:
• Price and Adu (2022) find that cross-border trade • What roles have advanced technology and global
was a factor in the transmission of COVID-19 in integration played in the survival of MNCs in
the early days of the pandemic. What are the emerging versus developed markets?
effects of the pandemic on longer-term interna- • How important is financial inclusion to eco-
tional capital and trade flows, such as foreign nomic growth in different economies?
direct investment (outflow and inflow) and • What is the comparative significance of different
exports/imports? notions of distance – such as cultural, geographic,
• Ciravegna and Michailova (2022) argue that the language, and legal – in various markets during
pandemic has increased inter- and intra-country the COVID-19 crisis?
inequalities. How does inequality, exacerbated by
the crisis, impact multinational firms?
Other pandemic-related research
Given the novelty of the COVID-19 pandemic, and
Factors contributing to building resilience notwithstanding the burgeoning literature that has
As outlined, the flexibility of MNCs to either transient ensued, there remain plenty of pandemic-related
or long-term shocks is an important topic for IB topics for IB researchers to explore:
scholars to explore, as future crises, whether they be
health- or climate-related, are likely to occur. • Does national culture (collectivism/individual-
ism, trust in government) affect the severity of
• Does organizational capital make MNCs more the health crisis and, as a consequence, the
resilient or more vulnerable during crises, as it makes economic impact?
raising external financial capital more difficult? • What is the role of the political economy in
• Luo (2022) finds that digital connectivity helps financial regulation in spurring international
firms be more resilient in a globalized world. business and economic growth during the crisis?
What other factors can insulate MNCs from • What are the implications of the pandemic for
pandemic-related demand and supply shocks? the emerging debate on stakeholder capitalism?
• Is there an optimal footprint of the firm (e.g.,
operations or supply chain) that allows for the
benefits of internationalization while protecting
the firm from disruptions stemming from crises?
ACKNOWLEDGMENTS
We have benefitted from the comments and sugges-
Factors reflecting a more fractured and less tions of three anonymous referees, and from the
globalized world participants at the 2022 Academy of International
Guedhami et al. (2022) suggest that there is a dark side Business (AIB). We thank Alain Verbeke (Editor) for
of globalization that happens in tail risk events. inviting us to develop this Research Note and provid-
Further, Buckley (2022) highlights that firms will ing insightful suggestions for its revision. The work on
Journal of International Business Studies
Economic impact of COVID-19 across national boundaries Omrane Guedhami et al.
1294
14
this article was done while April Knill was at Florida Duan et al. (2021) study the resilience of the
State University. banking sector to the pandemic in 64 countries and
explore the role of government response policy.
They argue that the spread of the virus led govern-
NOTES ments around the world to adopt containment
measures (e.g., social distancing, lockdowns, and
1
In this regard, the Oxford Coronavirus Govern- business shutdowns) that resulted in negative eco-
ment Response Tracker (OxCGRT) (2020) has nomic effects on firms (decline in revenue and
become the gold standard, a real-time data repos- creditworthiness) and households (unemployment
itory that provides huge opportunities for data and income loss). These in turn had adverse effects
mining and analytics surrounding COVID-19. on banks’ profitability, solvency, and capital. Con-
2
https://fas.org/sgp/crs/row/R46270.pdf. sistent with this conjecture, they find that the
3
https://www.bbc.com/news/56100076. intensity of the pandemic affects the stringency of
4
https://www.statista.com/statistics/1224168/total- government response, resulting in an increase in
population-of-africa/. systemic fragility.
15
5
https://www.nature.com/articles/s41562-021- As of this writing (November 2022), the for-
01079-8. tunes of oil-producing countries have reversed,
6
https://ourworldindata.org/policy-responses-covid. with windfall gains which are now fueled by the
7
The economic contraction during the Great Ukraine crisis. The misfortunes are on oil importers.
16
Depression was considerably worse if measured https://www.aasa.za.net/news-industry-affairs/
from peak to trough across the economic event in africa-news.html.
17
its entirety. Moreover, as we discuss later in this https://ourworldindata.org/coronavirus.
18
piece, the more advanced economies, including the On the dark side, the cost of borrowing and
US, rebounded faster than predicted. debt servicing costs have gone up considerably,
8
https://www.federalreserve.gov/data/corpsecure/ further exacerbated by the Ukraine crisis and the
current.htm. tight US monetary policy accompanied by rising
9
https://www.wsj.com/articles/buybacks-hit-record- dollar interest rates.
19
after-pulling-back-in-2020-11639263140. https://fortune.com/2022/07/02/delta-american-
10
https://www.bls.gov/opub/mlr/2021/article/ united-pilot-shortage-flight-cancellations-pandemic-
covid-19-ends-longest-employment-expansion-in- demand-summer-travel/.
20
ces-history.htm#:*:text=In%20April%2C%20 Africa Business (July 2020): https://african.
employment%20plummeted%2C%20dropping, business/2020/07/economy/ethiopian-airlines-moves-
series%2C%20which%20originated%20in%201939. from-passengers-to-cargo-as-pandemic-bites/.
21
&text=Then%2C%20however%2C%20a%20job% https://www.wsj.com/articles/how-a-beer-giant-
20recovery,by%204.8%20million%20in%20June. manages-through-waves-of-covid-around-the-world-
11
For example, Barber, Jiang, Morse, Puri, Tookes 11624830297?mod=Searchresults_pos16&page=1.
22
and Werner (2021) find that women and faculty https://www.mckinsey.com/business-functions/
with young children saw their research productiv- operations/our-insights/rethinking-operations-in-
ity fall during the early days of the pandemic. the-next-normal.
23
12
https://www.wsj.com/articles/companies-cut- The success story of Ethiopian Airlines in
orders-build-up-inventory-as-supply-disruptions- quickly shifting resources to cargo business by
continue-11653048000. converting passenger planes when the latter were
13
See also https://www.usatoday.com/story/news/ grounded in the wake of the pandemic has been
2020/07/22/coronavirus-handful-american-companies- attributed to the leadership qualities of the
strike-gold-amid-pandemic/5477904002/, and https:// dynamic CEO (Africa Business, July 2020). How-
www.ft.com/content/844ed28c-8074-4856-bde0- ever, at this stage, it is speculative and requires
20f3bf4cd8f0. rigorous research inquiry.
Journal of International Business Studies
Economic impact of COVID-19 across national boundaries Omrane Guedhami et al.
1295
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Journal of Corporate Finance, 66: 101929. ABOUT THE AUTHORS
Liu, J., Shahab, Y., & Hoque, H. 2022. Government response Omrane Guedhami is the C. Russell Hill Professor
measures and public trust during the COVID-19 pandemic:
Evidence from around the world. British Journal of Manage-
and Professor of International Finance at the
ment, 33(2): 571–602. University of South Carolina. He was recognized
Liu, Y., Peng, M., Wei, Z., Xu, J., & Xu, L. C. 2021. Organiza- among scholars who have made the most signifi-
tional resources, country institutions, and national culture cant contributions to JIBS in the first 50 years. His
behind firm survival and growth during COVID-19. https://
ssrn.com/abstract=3823869. current research focuses on corporate governance,
Luo, Y. 2022. New connectivity in the fragmented world. Journal corporate social responsibility, accounting, and
of International Business Studies, 53: 962–980. formal and informal institutions and their effects
Mansi, S. A., & Reeb, D. M. 2002. Corporate diversification:
What gets discounted? The Journal of Finance, 57(5): on corporate policies and firm performance. His
2167–2183. publication record includes more than 100 peer-
Megginson, W. L., & Fotak, V. 2020. Government equity reviewed articles published in leading academic,
investments in coronavirus bailouts: Why, how, when?
https://ssrn.com/abstract=3561282. including the Journal of Financial Economics, The
Meyer, B. H., Prescott, B., & Sheng, S. S. 2022. The impact of Accounting Review, Journal of Accounting Research,
the COVID-19 pandemic on business expectations. Interna- Journal of Accounting and Economics, Journal of Inter-
tional Journal of Forecasting, 38(2): 529–544.
Miguel, E., & Mobarak, A. M. 2021. The economics of the national Business Studies, Journal of Financial and
COVID-19 pandemic in poor countries. NBER working paper Quantitative Analysis, Review of Finance, Management
29339. https://doi.org/10.3386/w29339.
Mihov, A., & Naranjo, A. 2019. Corporate internationalization,
Science, Contemporary Accounting Research, Account-
subsidiary locations, and the cost of equity capital. Journal of ing, Organizations, and Society, Journal of Financial
International Business Studies, 50(9): 1544–1565. Intermediation, and Journal of Business Ethics, among
Nelson, M. A. 2021. The timing and aggressiveness of early others. He has received numerous research dis-
government response to COVID-19: Political systems, societal
culture, and more. World Development, 146: 105550. tinctions and prestigious awards, including the
OECD Economic Outlook. 2022. Vol. 1: The price of war. CIBER/FMA Best Dissertation in International
https://www.oecd.org/economic-outlook. Finance Case Award and the Moskowitz Prize for
Oh, C. H., & Oetzel, J. 2022. Multinational enterprises and
natural disasters: Challenges and opportunities for IB research. Socially Responsible Investing. His research is
Journal of International Business Studies, 53(2): 231–254. influential and widely cited. He has more than
Oxford Coronavirus Government Response Tracker (OxCGRT).
2020. Blavatnik School of Government, University of Oxford.
15,000 Google Scholar citations. He is ranked
https://covidtracker.bsg.ox.ac.uk. among the top 25 most prolific and influential
Phan, D. H. B., & Narayan, P. K. 2020. Country responses and authors on corporate governance between 2001
the reaction of the stock market to COVID-19 – a preliminary and 2020. He serves as Editor for major academic
exposition. Emerging Markets Finance and Trade, 56(10):
2138–2150. journals, including Contemporary Accounting
Price, G. N., & Adu, D. P. 2022. Was trade openness with China Research and Journal of Business Ethics.
an initial driver of cross-country human coronavirus infections?
Journal of Economic Studies, 49(1): 112–125.
Ramelli, S., & Wagner, A. F. 2020. Feverish stock price reactions April Knill is BPF Moore Fellow and Professor of
to COVID-19. The Review of Corporate Finance Studies, 9(3): International Finance at the University of South
622–655. Carolina. Before joining Florida State University,
Triggs, A., & Kharas, H. 2020. The triple economic shock of
COVID-19 and priorities for an emergency G-20 leaders she was a Professor of Finance at Florida State
meeting. Brookings Policy Report, March 17. https://www. University and a consultant for the Development
brookings.edu/blog/future-development/2020/03/17/the- Research Group at the World Bank in Washington,
DC. She is a graduate of the University of Maryland
Journal of International Business Studies
Economic impact of COVID-19 across national boundaries Omrane Guedhami et al.
1297
at College Park. Dr. Knill currently serves as a several top academic journals, including Journal of
Consulting Editor at the Journal of International Economic Literature, Journal of Finance, Journal of
Business Studies and an Associate Editor at Global Financial Economics, Journal of Law and Economics,
Finance Journal. Her research interests include Review of Financial Studies, and Journal of Financial
international corporate finance, venture capital, and Quantitative Analysis. His research has been
and the intersection between law, finance, and downloaded over 70,000 times from the Social
politics. Professor Knill has published in journals Sciences Research Network and cited over 26,000
such as Journal of International Business Studies, times (according to Google Scholar).
Journal of Financial and Quantitative Analysis, Review
of Finance, Journal of Business, Journal of Corporate Lemma W. Senbet is the William E. Mayer Chair
Finance, Journal of Financial Intermediation, Financial Professor of Finance at University of Maryland and
Management, and Journal of Comparative Economics, former Executive Director/CEO of African Eco-
among others. Her research has received numerous nomic Research Consortium, with research inter-
awards including the Dean’s Emerging Scholar ests spanning corporate finance, international
Award and the CIBER/FMA Award for the Best finance, and financial sector reforms and develop-
Dissertation in International Finance. Professor ment, which have appeared in such journals as
Knill has served as a Guest Editor at both Journal of Journal of Finance, Review of Financial Studies, Review
International Business Studies and Journal of Corporate of Finance, JIBS, etc. He has received numerous
Finance and has recently been elected by her peers recognitions for his impact on the profession. He
to be the Vice President of Programs for the Eastern was twice elected director of the American Finance
Finance Association (EFA). She will serve as the Association and past President of Western Finance
President of the EFA from April, 2022 through Association. He is Fellow of Financial Management
April, 2023. Association International for his career-long dis-
tinguished scholarship. He was inducted into
William L. Megginson is Professor and Price Chair Financial Economists Roundtable, a distinguished
in Finance at the University of Oklahoma’s Michael group of world-wide financial economists. He has
F. Price College of Business and Visiting Professor at held associate editorships and editorial positions at
the University of International Business & Eco- over a dozen journals, including the Journal of
nomics (Beijing). He is also Area Editor for the Finance and JIBS. Professor Senbet has advised the
Journal of International Business Studies. From 2002 World Bank, IMF, UN, and agencies around the
to 2007, he was a voting member of the Italian globe on financial sector reform issues, and has
Ministry of Economics and Finance’s Global Advi- served on the Board of Hartford Funds. He has been
sory Committee on Privatization. During spring on the Nominating Group for the Nobel Prize in
2008, he was the Fulbright Tocqueville Distin- Economic Science. He is a member of the Brookings
guished Chair in American Studies and Visiting AGI Distinguished Advisory Group and of the
Professor at the Université-Paris Dauphine. Profes- Independent Council of Economic Advisors (ap-
sor Megginson’s research interest has focused in pointed by the Ethiopian PM). Prof Senbet has been
recent years on the privatization of state-owned elected Fellow of the Academy of International
enterprises, sovereign wealth fund investments, Business.
energy finance, and investment banking principles
and practices. He has published refereed articles in
Publisher’s Note Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional
affiliations.
Accepted by Alain Verbeke, Editor-in-Chief, 6 December 2022. This article has been with the authors for one revision.
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