Michel Beine and Arnaud Dupuy, Full Professors in Economics in the Department of Economics and Management at the Faculty of Law, Economics and Finance are contributing to the discussion on the economic impact of COVID-19 with an article which will appear next week in the independent Luxembourg magazine Forum.
In the article entitled “Covid-19 might affect the economic recovery and the long-run economic stance through its impact on individual preferences”, Beine and Dupuy build on the lessons drawn from their recent research looking at the impact on the population of Tirana in the wake of two devastating earthquakes in the second part of 2019. They focus on one particular way this global pandemic may impact how individuals make economic decisions in the long run.
Just like other natural disasters, the Covid-19 crisis can affect risk and time preferences of economic agents in the long run. People can become more risk-averse and impatient after the crisis, which can in turn affect a large number of economic decisions that involve these preferences. The most obvious economic activities that will be affected by more risk aversion would be investment and innovation. More impatience could lead to a decrease in human capital investment, i.e; education for instance. Since these activities are important engines of economic activity, this could lower the long-run prospects of economic growth. One important difference from natural disasters such as earthquakes is that this crisis could also affect trust, both between people and towards the authorities. This is another channel through which activity could be affected.