Prague University of Economics and Business
Faculty of Economics
Field of study: Economics
A COMPARATIVE ANALYSIS OF THE
IMPACT OF THE COVID PANDEMIC AND THE GOVERNMENT RESTRICTIONS ON THE
C ZECH R EPUBLIC AND S WEDEN IN 2020
Bachelor thesis
Author: Kateřina Sabelová
Thesis supervisor: Ing. Pavel Potužák, Ph.D.
Year: 2021
Prohlašuji na svou čest, že jsem bakalářskou práci vypracovala samostatně a s použitím uvedené literatury.
Kateřina Sabelová V Praze, dne 13.5. 2021
Poděkování
Ráda bych poděkovala Ing. Pavlu Potužákovi, Ph.D. za vedení mé bakalářské práce, za cenné rady, komentáře, konzultace, a především za čas, který mi věnoval. Děkuji také za vstřícný přístup.
Dále bych chtěla poděkovat rodině a přátelům za trpělivost a podporu.
Abstract
The goal of this thesis was to research the difference in effect of the government restrictions in response to the COVID-19 pandemic in the Czech Republic and Sweden. The Czech Republic serves as the representative country with higher level of government restrictions. The overview of restrictions in both countries was used to distinguish between the restriction levels in the two respective countries. The Difference in Difference method was used. GDP growth rate, GDP in million euro, consumption growth rate, saving rate, unemployment rate, and the index of industrial production were set as indicators of the state of the economy. The results of the regression showed a significant difference between Sweden and the Czech Republic for all the observed dependent variables except the industrial production. From the results it can be assumed that the more stringent restrictions in the Czech Republic were a cause for a larger decrease in the GDP growth rate, consumption growth rate and a larger increase in the saving rate. The unemployment rate decreased more in Sweden, possibly due to a lower level of economic help from the government.
Keywords: COVID-19, pandemic, restrictions Klíčová slova: pandemie, opatření
Cílem bakalářské práce bylo zkoumání rozdílu dopadu vládních opatřeních spojených s nemocí COVID-19 na ekonomiku České republiky a Švédska. Česká republika slouží jako reprezentativní země s vyšším stupněm opatření. Pro rozlišení stupně opatření je uveden jejich přehled. Byla použita metoda Difference in Difference. V práci slouží jako ukazatele stavu ekonomiky míra růstu spotřeby, míra úspor, míra nezaměstnanosti, index objemu průmyslové produkce, míra růstu HDP a HDP v milionech eur. Výsledky modelů ukázaly významný rozdíl mezi Švédskem a Českou republikou pro všechny pozorované proměnné kromě objemu průmyslové produkce. Z výsledků lze usuzovat, že přísnější opatření v České republice vedla k většímu poklesu HDP, míry spotřeby a k většímu nárůstu míry úspor. Míra nezaměstnanosti naopak narostla více ve Švédsku. Tento rozdíl může být připisován větší ekonomické pomoci ze strany státu v České republice.
JEL classification: C21, A10
Contents
Introduction ... 9
1. Cost of the Pandemic ... 10
1.1 The Example of the Spanish Flu ... 10
1.2 SARS Outbreak ... 11
1.3 The Ebola Virus Epidemic in West Africa ... 11
2. The COVID-19 Outbreak ... 13
3. Government Restrictions ... 16
3.1 Government Restrictions: Public events, gatherings, restaurants, shops, and services ... 16
3.1.1 Sweden ... 16
3.1.2 The Czech Republic ... 20
3.2 Government restrictions: Schools ... 26
3.2.1 Sweden ... 26
3.2.2 The Czech Republic ... 27
3.3 Government restrictions: Masks ... 28
3.3.1 Sweden ... 28
3.3.2 Czech Republic ... 28
3.4 Conclusion ... 29
4. COVID-19 Government Response Tracker ... 30
4.1 Stringency Index ... 30
4.2 Economic Support Index ... 31
5. Labor Market ... 32
6. Research on the Economic Impacts of COVID-19 ... 33
7. The Difference in Difference Method ... 35
8. Effect on GDP ... 36
9. Effect on Consumption ... 45
10. Effect on Savings ... 49
11. Effect on Unemployment ... 53
12. Effect on Industrial Production ... 57
Conclusion ... 61
Used abbreviations ... 62
List of graphs ... 62
List of tables ... 63
List of figures ... 64
Bibliography ... 65
Data sources ... 71
Introduction
In March 2020, the COVID virus was spreading globally. The numbers of COVID-19 cases in Europe were already growing at a rate alarming both politicians and the public.
On March 11th, the World Health Organization declared COVID-19 a global pandemic.
Throughout 2020, most of the world was affected by the spreading of the virus and the restrictions imposed by governments. The consequent impact on the economy has been a topic of discussion since the first lockdowns were imposed.
The focus of this thesis is to evaluate how the effect differed among countries with different levels of restrictions. In order to simplify the analysis, the case of two countries was been selected. The Czech Republic serves as a representative country with a higher level of government restrictions in contrast with Sweden, where the measures were more moderate.
First, previous epidemics and their impact on the economy are depicted. Government restrictions in response to COVID-19 in Sweden and the Czech Republic are listed to give an overview of the severity of the government response. Sweden avoided a strict lockdown throughout the year 2020. The Swedish government directed recommendations and social distancing rules while disrupting business as little as possible. In the Czech Republic, a stringent lockdown was imposed in spring and again in autumn.
The restrictions were more volatile in the Czech Republic as the lockdown periods were alternated by periods with no restrictions. The government support in the labor market in both respective countries is described, too.
A negative effect of the pandemic on the economy is assumed. Furthermore, we can presume that such an effect will be more considerable in countries with more stringent restrictions. The difference in difference method is used to compare the impacts on the economy. In order to evaluate the state of the economy, the work utilizes various variables: the GDP growth rate, GDP in million euro, the consumption growth rate, the saving rate, unemployment rate, and volume index of industrial production. There are five different models created for each of the dependent variables to test the robustness of the results. The stringency index, the economic support index, the number of COVID deaths, the number of COVID cases, percentage of the population with tertiary education, GDP per capita, economic sentiment indicator and export as a percentage of GDP serve
as control variables. Other than the DiD analysis, the work uses a graphical representation demonstrating each dependent variable alongside the stringency index to indicate a possible correlation.
1. Cost of the Pandemic
As epidemics occurred in the past, traditional health economists distinguished economic costs associated with health crises as direct and indirect. The disease outbreak’s healthcare costs are direct, while indirect loss results from lost incomes and implicit health costs. However, all costs related to the epidemic depend on the preparedness of the country and the character of the event (K. M. Smith et al., 2019). This approach had proved to be too narrow in the past when it came to highly infectious diseases without a vaccine. Ebola virus, SARS, and the Spanish flu can be used as examples that illustrate the possible outcomes of the current COVID-19 outbreak. Still, the current situation is unique. Due to governments’ and media’s response worldwide, the spread of COVID-19 caused both demand and supply shocks (Fernandes, 2020).
1.1 The Example of the Spanish Flu
The Global Influenza Pandemic, also known as the Spanish flu, is estimated to have killed about 40 million people in 48 countries. Three major waves of the disease hit the world population: first in spring 1918, second from September 1918 until February 1919, and third for the rest of 1919. A specific trait of the Spanish flu was high mortality among young and healthy people, which led to even higher economic costs due to lost incomes.
There is no doubt that the Global Influenza Pandemic caused a significant negative shock to the world economy. It is, however, difficult to determine the impact of the pandemic because of World War I. Barro, Ursúa, and Weng (2020) use deaths in combat during World War I to conclude the war intensity in the countries affected by the Spanish flu.
The conclusion is that in a typical country, the pandemic caused a 6% decline in GDP and an 8% decline in consumption. It is essential to state that the deaths caused by Influenza comprised a total of 2.1% of the world’s population. If approximately 150 million people died due to COVID-19, the current pandemic would reach a similar scenario as the Global Influenza Pandemic (Barro et al., 2020). As of May 11th 2021, over 3 million deaths due to COVID-19 were reported globally (WHO, 2021).
1.2 SARS Outbreak
Severe acute respiratory syndrome (SARS) broke out in the year 2003 in China. With the already high level of globalization at that time, the virus spread quickly. Within a few weeks, approximately 33 countries around the world reported cases of SARS. As a result, there was a great deal of concern that a global pandemic would arise comparable to the 1918 influenza (R. D. Smith, 2006).
In the end, the direct costs were not significantly high as the total number of the infected reached around 8,000 cases, with 813 confirmed deaths. Over 90% of the confirmed cases were recorded in Asian countries, where the outbreak began (WHO, 2020). Nevertheless, the epidemic had an excessively large impact on the economy, namely on the most affected countries. On grounds of a lacking cure, the affected countries took the approach of quarantine to fight the virus. The virus was suppressed by July 2003 due to a successful quarantine procedure set by public health organizations worldwide. Easy access to information via modern technologies contributed to the successful solution.
It increased public awareness of the issue and improved monitoring of the quarantine process.
On the other hand, these means of containment were a contributary factor to the negative impact on the economy. Even those individuals with an objectively low probability of infection disrupted their social and economic activity. The fall in GDP due to SARS in Asia is estimated to be 0.5% (Hanna & Huang, 2004).
1.3 The Ebola Virus Epidemic in West Africa
The Ebola virus epidemic first broke out in West Africa during the years 2014-2016.
It caused a significant financial burden and damage to the health sector of the affected countries. The three most affected countries were Guinea, Liberia, and Sierra Leone (Elmahdawy et al., 2017). Guinea was the first country to report a case in December 2013.
On March 24th an Ebola outbreak was announced by the World Health Organization.
Due to the poor state of the public health system and the insufficient response of Guinea authorities, the epidemic quickly spread to Liberia and Sierra Leone. All three countries were declared Ebola-free in 2016, the last being Guinea in June (CDC, 2020).
Table 1: Ebola Cases in West Africa 2014-2016
Country Cumulative cases Cumulative deaths
Guinea 3 814 2 544
Liberia 10 678 4 810
Sierra Leone 14 124 3 956
Source: Centers for Disease Control and Prevention, 2020, own interpretation In Table 1 the numbers of cumulative cases and deaths are showed. The highest number of cases was reported in Sierra Leone, while Liberia reported the most deaths. The figures in Guinea, while still alarming, are significantly lower.
Graph 1: GDP Growth Rate (%) in West Africa 2010-2016
Source: The World Bank 2020, data.worldbank.org, own interpretation
*the right vertical axis – measure for Sierra Leone
Graph 1 illustrates the decrease in the GDP growth rate that followed the Ebola outbreak.
The most significant decline in GDP growth rate was recorded in Sierra Leone, where the number of Ebola cases was the highest. Simultaneously the lowest GDP growth rate decline was observed in Guinea, with the lowest number of Ebola cases within the three respective countries.
-25 -20 -15 -10 -5 0 5 10 15 20 25
0 2 4 6 8 10
2010 2011 2012 2013 2014 2015 2016
GDP GROWTH RATE %
GUINEA LIBERIA SIERRA LEONE
The epidemy directly resulted in a reduction of the work force because part of the working population performed caregiving jobs for their family members, which was a consequence of the poor social infrastructure. Fear of infection also led people to stay home. That resulted in decreased output and household income. The direct effect covered other behaviors affecting the economy. The fear of contagion led foreign companies to dismiss workers. Furthermore, borders were closed and traveling by individuals for both tourism and business purposes was reduced.
Another indicator of the effect of Ebola on the economy is the fiscal balance.
The countries experienced a significant reduction in tax revenues. With enormous pressure on the public healthcare system there was a remarkable increase in public expenditures as well as the costs arising out of introducing precautionary measures to prevent the virus spread (Qureshi, 2016).
2. The COVID-19 Outbreak
In January 2020, an outbreak of unknown respiratory disease became a concern.
On January 9th, the World Health Organization (WHO) announced that Chinese authorities confirmed the outbreak to be caused by a new coronavirus. On March 11th, WHO characterized COVID-19 as a pandemic. On March 13th, WHO stated that Europe became the epicenter of the pandemic. By the beginning of April, 1 million cases of COVID-19 had already been confirmed worldwide (WHO, 2020). The first COVID- 19 case in Sweden was reported on January 31st (Folkhälsomyndigheten, 2020).The Czech Republic reported its first three cases of COVID-19 on March 1st (Vláda, 2020).
Graph 2: Total Number of COVID-19 Cases per Million: 01.02 2020 – 31. 5. 2020
Source: Our World in Data, own interpretation
As seen from Graph 2 in the first half of the year 2020, Sweden reported more COVID- 19 cases than the Czech Republic. While in both countries the number of cases was growing, the growth rate in the Czech Republic was significantly slower.
Graph 3:Total Number of COVID-19 Cases per Million – 01.06. 2020 – 30.4. 2021
Source: Our World in Data, own interpretation
0 500 1000 1500 2000 2500 3000 3500 4000
01.02.2020 01.03.2020 01.04.2020 01.05.2020
Total Number of COVID-19 Cases per Million
Czech Republic Sweden
0 20000 40000 60000 80000 100000 120000 140000
01.06.2020 13.06.2020 25.06.2020 07.07.2020 19.07.2020 31.07.2020 12.08.2020 24.08.2020 05.09.2020 17.09.2020 29.09.2020 11.10.2020 23.10.2020 04.11.2020 16.11.2020 28.11.2020 10.12.2020 22.12.2020 03.01.2021 15.01.2021 27.01.2021 08.02.2021 20.02.2021 04.03.2021 16.03.2021 28.03.2021 09.04.2021 21.04.2021
Total Number of COVID-19 Cases per Million
Czech Republic Sweden
Graph 3 shows the development from June 2020 to April 2021. In both countries, the number of cases was growing rapidly. In October the number of cases in the Czech Republic surpassed the number of cases in Sweden. The growing trend was similar in both countries. However, the total number was significantly higher in the Czech Republic. The thesis focuses on the year 2020, which is indicated by a dashed line in Graph 3. However, it is interesting to note, that the trend continued in 2021.
Graph 4: Total Number of COVID-19 Deaths per Million
Source: Our World in Data, own interpretation
A similar development is showed in Graphs 4 and 5 regarding the COVID-19 deaths per million people.
0 50 100 150 200 250 300 350 400 450
01.03.2020 08.03.2020
15.03.2020 22.03.2020
29.03.2020 05.04.2020
12.04.2020 19.04.2020
26.04.2020 03.05.2020
10.05.2020 17.05.2020
24.05.2020
Total Number of COVID-19 Deaths per Million
Czech Republic Sweden
Graph 5: Total Number of COVID-19 Deaths per Million - 01.06.2020 - 30.04.2021
Source: Our World in Data, own interpretation
The numbers were significantly higher in Sweden until mid-November. Since November, the Czech Republic has recorded a considerably higher number of deaths compared to Sweden. While the number of deaths in Sweden was increasing until the end of 2020, in 2021 the total number of COVID-19 deaths per million remained more or less constant.
By contrast, the Czech Republic recorded a substantial growth of the total number of deaths in 2021.
3. Government Restrictions
3.1 Government Restrictions: Public events, gatherings, restaurants, shops, and services
3.1.1 Sweden
In Sweden most of the restrictions in 2020 were in the form of recommendations or advice.
0 500 1000 1500 2000 2500
01.06.2020 13.06.2020 25.06.2020 07.07.2020 19.07.2020 31.07.2020 12.08.2020 24.08.2020 05.09.2020 17.09.2020 29.09.2020 11.10.2020 23.10.2020 04.11.2020 16.11.2020 28.11.2020 10.12.2020 22.12.2020 03.01.2021 15.01.2021 27.01.2021 08.02.2021 20.02.2021 04.03.2021 16.03.2021 28.03.2021 09.04.2021 21.04.2021
Total Number of COVID-19 Deaths per Million
Czech Republic Sweden
Table 2: Government Restrictions in Sweden – March and April
Day Government response to COVID: Gatherings, events, shops, and services
2020
March 10th The government advised to avoid unnecessary visits to healthcare and elderly care establishments.
March 12th Ban on all public gatherings over 500 people.
March 16th The government advised people over 70 to avoid contacts and recommended working from home to everyone.
March 24th Restaurants allowed to operate under the following restrictions: tables are spaced appropriately to avoid crowding; customers must be served
at their tables.
March 29th Ban on all public gatherings over 50 people.
April 1st All visits to nursing homes were banned.
Source: www.folkhalsomyndigheten.se, own interpretation
Table 2 lists the government restrictions covering public events, gatherings, restaurants, shops, and services in March and April 2020. In March, gatherings and events were limited, including demonstrations, lectures, church services, theatre, cinema, concerts, sports events, dance performances, amusement parks, and markets. Restaurants were ordered to follow a set of restrictions to limit crowding. Customers could only drink and eat while sitting down at a table. The restaurant staff had to take the orders. People could order and pick up food and drinks by themselves only if crowding could be avoided.
The same conditions applied to take out food. All other shops and services remained open.
Visits to nursery homes were also restricted and people over 70 were advised to distance themselves (Folkhälsomyndigheten, 2020).
Table 3: Government Restrictions in Sweden – October
Source: www.folkhalsomyndigheten.se, www.regeringen.se, own interpretation
In October, the quarantine rules changed. When a household member got infected with COVID-19, other household members had to follow the rules set by their doctor. That is, for example, staying home from work for at least seven days. The exception from this procedure applied to children in compulsory education and people who had previously been tested positive for COVID-19 or had antibodies confirmed by a test (Folkhälsomyndigheten, 2020). The Swedish government also eased the recommendations for people over 70 to distance. It also stated that the same recommendations as to other groups in society applied to the elderly (Regeringen.Se, 2020).
Table 4: Government Restrictions in Sweden – November
Day Government response to COVID: Gatherings, events, shops, and services
2020 November
1st
Sports and cultural events with seated audience allowed up to 300 people.
November
3rd The following restrictions for restaurants came into force: number of guests at one table was limited to eight, tables at least 1m apart November
20th Serving alcohol between 22:00 and 11:00 was banned.
November 21st
The government granted the Swedish Public Health Agency the authority to introduce regional bans on nursing home visits.
November
24th All public events and gatherings were limited to eight people.
Source: www.krisinformation.se, www.regeringen.se, own interpretation
Day Government response to COVID: Gatherings, events, shops, and services
2020
October 1st The ban on visiting elderly from March 31st expired.
October 1st A change in quarantine rules was introduced: rules for households’
members set by their doctor.
October
22nd The government eased the recommendation for people over 70 to distance themselves.
In November the previous ban on public events and gatherings of over 50 people was eased to a maximum of 300 people at cultural and sports events on November 1st. This covered events with a seated audience where people maintain at least one-meter distance. A maximum of two people could be seated together. In restaurants, the number of guests at a table was limited to eight and the tables were required at least one meter apart. Live music was allowed if the audience was seated. The government also enabled the Swedish Public Health Agency to ban visitors to nursing homes regionally based on he epidemic situation. All public events and gatherings were limited to eight people, including demonstrations, lectures, church services, theatre, cinemas, concerts, sports events, dance performances, amusement parks, and markets. The restriction did not cover schools, public transport, shops, and private events. An exception was also made for funerals where the maximum of people allowed was set to 20 (Krisinformation.se, 2020). A ban on alcohol serving between 22:00 and 11:00 came into force to reduce the risk of infection in restaurants (Regeringen.Se, 2020).
Table 5: Government Restrictions in Sweden – December
Day Government response to COVID: Gatherings, events, shops, and services
2020 December
23rd
The government introduced new advice to shops shopping centers, and fitness facilities to adapt the number of people allowed on the premises
at one time according to size, ventilation, and furnishing.
December
24th Number of people at one table in restaurants was limited to 4.
December
24th Serving alcohol between 20:00 and 11:00 was banned.
December
24th Working from home highly recommended when possible.
December
24th All unnecessary services like museums, bathhouses and some libraries were ordered to close.
Source: www.folkhalsomyndigheten.se, www.krisinformation.se, own interpretation In December the Public Health Agency appealed to the public to limit contacts during the Christmas holidays (Folkhälsomyndigheten, 2020). The government also advised shops, shopping centers, and fitness facilities to restrict the number of people on the premises at one time according to the size of the site, ventilation options, and furnishing.
The restrictions applying to restaurants and serving alcohol were tightened. Stores were urged to refrain from mid-day sales to prevent crowding. A new recommendation to work
from home was issued applying to both the public and private sectors. All unnecessary services like museums, bathhouses and some libraries were ordered to close (Krisinformation.se, 2020).
3.1.2 The Czech Republic
Table 6: Government Restrictions in the Czech Republic – March
Day Government response to COVID: Gatherings, events, shops, and services
2020
March 13th State of emergency was declared.
March 13th Public events and gatherings over 30 participants were banned.
March 13th All restaurants and pubs had to be closed from 20:00 to 6:00.
March 13th The following services were banned: gyms, aqua centrums, steam baths, wellness centers, music clubs, entertainment services, public libraries,
and galleries
March 13th Restaurants placed in shopping centers larger than 5000m^2 were ordered to close.
March 14th Ban on retail sale in markets.
March 14th Sports grounds for more than 30 people were closed.
March 14th Presence of the public in swimming pools and information centers was banned.
March 14th All non-essential shops and services were ordered to close.
March 16th Free movement of persons outside was banned with exceptions.
March 16th People over 70 were recommended to stay at home and an order to mayors to provide help.
March 16th Medical care was restricted to only essential procedures.
March 19th It became mandatory to cover airways when leaving a place of residence.
March 19th A devoted shopping time for senior citizens (over 65) was set to 10:00- 12:00.
March 19th Hospital visits were banned.
Sources: Vláda, 2020, vlada.cz, own interpretation
In the Czech Republic, the government declared the state of emergency on March 13th. In March 2020, public events and gatherings were restricted, all pubs and restaurants were
required to limit their opening hours. Services such as fitness centers, aquatic centers, wellness centers, music clubs, entertainment centers, public libraries, and museums were banned. Shops selling groceries, electronics, fuels, cosmetics, sanitary articles, medicine, pets, food for pets and domestic animals, glasses, contact lenses, newspaper, magazines, tobacco products, and laundry services were established as essential and could stay open.
All other shops were closed.
Free movement of persons outside was banned except traveling to work, essential travel to visit family, essential travel to obtain necessities for life, visits in nature, traveling to see a doctor, or necessary administrative tasks. The government also recommended that people over 70 stay at home and distance themselves while ordering mayors to provide help. Shopping time dedicated to senior citizens was set. At that time, no other customers could be present in shops (Vláda, 2020).
Table 7: Government Restrictions in the Czech Republic – April
Day Government response to COVID: Gatherings, events, shops, and services
2020
April 20th Craft workshops, farmers markets, used cars shops, car showrooms opened.
April 20th Outdoor practice of professional athletes and weddings up to 10 people were allowed.
April 24th Church services with up to 15 people were permitted.
April 27th All shops under 2500 square meters that are not placed in shopping centers above 5000 square meters reopened.
April 27th Libraries, zoos, botanical gardens, fitness centers and gyms reopened.
Sources: Vláda, 2020, vlada.cz, own interpretation
In April 2020, some of the restrictions were eased. Some serviced reopened, outdoor practice, weddings and church services were reinstated. Retail shops, as listed in Table 7, reopened. Fitness centers and gyms could also reopen; however, the showers and locker rooms could not be used (Vláda, 2020).
Table 8: Government Restrictions in the Czech Republic – May
Day Government response to COVID: Gatherings, events, shops, and services
2020
May 11th Gatherings up to 10 people allowed May 11th All retail shops could reopen.
May 11th All restaurants, pubs, buffets, cafes, wine shops and beer shops with sale via sales windows and within outdoor (summer) gardens are open.
May 11th All services were permitted to operate again.
May 11th Visiting outdoor areas of theatres, chateaux, and castles was allowed.
May 11th Public events, sports practice, and weddings were allowed up to 100 people.
May 17th The state of emergency ended.
May 25th The indoor areas of restaurants, pubs, buffets, cafes, wine shops and beer shops could open.
May 25th Sports practice, public events, and gatherings were allowed up to 300 people.
May 25th Museums, galleries, and castles could open sections indoors.
May 25th Swimming pools and wellness centers could reopen.
Sources: Vláda, 2020, vlada.cz, own interpretation
In May 2020, more restrictions were eased. All shops, including shopping centers, could reopen. All restaurants and pubs could gradually reopen, were, however, closed to customers from 23:00 to 6:00 except for window sales. All services such as hairdressers, nail salons, tanning salons, massage salons, and others were permitted to operate again. All museums, galleries, castles, chateaux, and similar establishments could reopen gradually. Theatre, cinema, sports events, religious events, shows, church services, sports practice, and weddings were allowed first up to 100 and later 300 people (Vláda, 2020).
Table 9: Government Restrictions in the Czech Republic – June and July
Day Government response to COVID: Gatherings, events, shops, and services
2020
June 8th Public events and gatherings were allowed up to 500 people June 8th Restaurants and pubs could serve customers seated outside between
23:00-6:00.
June 15th Selling food prepared for immediate consumption at farmers markets, at other markets, and in theaters was allowed
June 22nd Public events and gatherings of up to 1000 people were allowed.
July 1st The restriction on opening time for restaurants was lifted Sources: Vláda, 2020, vlada.cz, own interpretation
In June 2020, the number of people allowed at public events and gatherings increased.
including theater, concerts, museums, church services, lectures, and weddings.
More restrictions on restaurants were lifted (Vláda, 2020).
Table 10: Government Restrictions in the Czech Republic – October
Day Government response to COVID: Gatherings, events, shops, and services
2020
October 5th State of emergency was reinstated.
October 5th All indoor events of over 10 people and outdoor events of over 20 people were banned.
October 5th Cultural events were restricted to 500 people if distancing was secured.
October 5th The presence of the public was banned at all sporting events.
October 5th Church services were restricted to 100 people.
October 5th The opening time of restaurants and pubs was restricted to 6:00-20:00.
October 5th In shopping centers people were only allowed to enter in groups of 2.
October 12th
Public events and gatherings were maintained at 500 people, under the condition that people were divided into separate groups of a maximum
of 20 people.
October
14th Public events of over 6 people were banned.
October
14th Drinking alcohol in public was banned.
October
14th Presence of customers in restaurants, pubs, buffets, cafes, wine shops and beer shops was banned.
October
22nd A ban on free movement outside entered force.
October
22nd All non-essential services and shops were closed.
October
22nd A maximum of 2 people could gather in public.
October
28th Free movement between 21:00-5:00 was banned.
Sources: Vláda, 2020, vlada.cz, own interpretation
In October 2020, new restrictions were introduced due to the increasing number of infected people. Public gatherings were restricted, including church services and excluding courts and weddings. Weddings and funerals were first limited to 30 and later 10 people. The government also implemented a ban on drinking alcohol in public and the customer’s presence in restaurants. Music and dance clubs were ordered to close altogether. A ban on free movement outside entered force except traveling to work, essential travel to see a family member, travel to obtain necessities for life, visiting nature, traveling to a funeral or a wedding, traveling to see a doctor, and urgent administrative tasks. Furthermore, all essential services and shops were closed again and the government recommended working from home. On October 28th free movement between 21:00-5:00 except traveling to work, urgent travels, and walking a dog within 500m of a home was banned (Vláda, 2020).
Table 11: Government Restrictions in the Czech Republic – November and December
Day Government response to COVID: Gatherings, events, shops, and services
2020 November
4th Hospital visits were banned.
November
23rd Ban on free movement eased to 23:00-5:00.
December
3rd Restaurants, pubs, buffets, cafes, wine shops and beer shops could open to the public again with strict hygienic restrictions and distancing.
December
3rd Non-essential shops and services could re-open.
December
3rd The ban on free movement was lifted.
December
3rd A maximum of 50 people was allowed at outdoor events and 10 people at indoor events.
December
3rd Up to 30 people could attend weddings and funerals.
December
18th Restaurants, pubs, buffets, cafes, wine shops, and beer shops were closed.
December
18th Non-essential shops and services were closed.
December
18th The ban on free movement was reinstated between 23:00-5:00 December
18th Public events were restricted to 6 people.
December
18th Wedding and funerals were restricted to 20 people.
December
27th The ban on free movement was tightened to 21:00-5:00.
December
27th A maximum of 2 people was allowed at public events and gatherings.
December
27th Wedding and funerals were restricted to 15 people.
Sources: Vláda, 2020, vlada.cz, own interpretation
In November 2020 the ban on free movement was eased. In December 2020 restaurants, shops and services could open again provided they followed sanitary measures. The ban on free movement was fully lifted. The number of people allowed at public events was
increased. In the second half of December the previous restrictions were reinstated.
At the end of the month public events and gatherings were limited to two people while up to 15 people could attend weddings and funerals (Vláda, 2020).
3.2 Government restrictions: Schools
3.2.1 Sweden
Restrictions in reaction to the COVID-19 pandemic, also affected schools and education in general. However, the approach in the two respective countries differed.
Table 12: School Restrictions - Sweden
Day Government response to COVID: Schools 2020
March 13th The government approved temporary rules for schools to have the possibility to switch to distance learning.
March 17th Government recommendation switching to remote or online teaching to all secondary and tertiary education institutions.
June 15th Secondary and tertiary education schools could re-open.
August 31st Testing of children and adolescents who show symptoms of COVID-19 infection was recommended.
November
23rd Upper education schools could use distance learning to complement on- site teaching.
December
7th The Public Health Agency recommended that upper education schools switch to distance learning.
Sources: www.krisinformation.se, www.regeringen.se, own interpretation
In Sweden online teaching at secondary schools and universities was recommended for the spring semester. In June 2020, secondary and tertiary schools were allowed to open. The government also decided that the Swedish Scholastic Aptitude test would not take place in spring 2020. It was decided that the summer school and autumn semester would be carried out on site. In November 2020, upper education institutions were ordered to use distance learning to complement on-site teaching to reduce infection risk.
The school first had to exhaust all other possibilities, including evening and weekend tuition. In December 2020, the Public Health Agency recommended that upper education schools switch to distance learning.
3.2.2 The Czech Republic
Table 13: School Restrictions – the Czech Republic
Day Government response to COVID: Schools 2020
March 13th Attendance by students of primary, secondary, and tertiary education at schools and education facilities has been prohibited.
April 20th Attendance by university students in their final year of studies at clinical and practical training and practice is permitted
April 27th Attendance by all university students at clinical and practical training and practice is permitted
May 11th Attendance by students is permitted up to 15 people for students preparing for graduation.
May 25th Elementary school students could voluntarily attend on-site teaching.
May 25th All elementary and secondary school students could attend examinations in schools of up to 15 people.
June 1st Examinations such as high school graduations and admissions could be carried out again.
June 1st Practical teaching in schools was allowed up to 15 people.
October
14th Attendance by students of primary, secondary, and tertiary education at schools and education facilities has been prohibited.
October
21st The maximum of people present at universities for examination purposes was set to 10.
November
18th First and second grade students at elementary schools could go back to on-site teaching.
November
25th Students in their final year of high school could go back to school.
November
25th Attendance by all students at clinical and practical training and practice is permitted
November 30th
First level and ninth grade of elementary schools went back to school regularly, while other second level grades went back to school rotating
every other week December
3rd Secondary schools switched to rotating on-site teaching every other week.
December
18th Secondary schools switched back to distance learning.
December
27th Attendance by students of primary, secondary, and tertiary education at schools and education facilities has been prohibited.
Sources: Vláda, 2020, vlada.cz, own interpretation
In March 2020, in-person teaching was banned for all educational institutions and schools. All levels of education were obliged to switch to distance learning. An act allowing for alternations in admission and graduation procedures and examinations for the year 2020 passed. In April, university students were allowed to attend consultations, examinations, practical and clinical classes, and other campus activities up to five people present.
In May 2020, secondary school students could attend on-site classes to prepare for graduation exams with up to 15 people present. In June, examinations such as high school graduations and admissions could be carried out again. Practical teaching in secondary schools was allowed up to 15 people. All the previous restrictions were relaxed after the summer break for the next academic year.
In October 2020, all universities, secondary schools, elementary schools, language schools, and free-time education institutions switched to distance learning again. Practical and clinical teaching activities for medical and teaching programs continued.
In November elementary school students returned to school. Grades 5-8 went back to school rotating every other week. In December, secondary schools also switched to rotating on-site teaching every other week. However, in the second half of December all teaching was switched to distance learning again (Vláda, 2020).
3.3 Government restrictions: Masks
3.3.1 Sweden
Throughout the year 2020 masks and covering of airways, in general, were not mandatory in Sweden.
3.3.2 Czech Republic
By contrast, in the Czech Republic orders to cover airways were used widely to prevent spreading of the virus.
Table 14: Masks – the Czech Republic
Day Government response to COVID: Masks 2020
March 19th Mandatory to cover airways outside the place of residence using a mask, scarf, bandanna, or other protective means.
May 25th Mandatory to cover airways indoors, on public transport, or when people who do not live together were closer than 2 m.
June 15th Mandatory to cover airways indoors, on public transport, and public events if 1.5 m distance was not maintained
July 1st All restrictions concerning masks were relaxed and were regulated regionally.
September
1st Mandatory to cover airways on public transport and in hospitals.
September
10th Mandatory to cover airways indoors, public transport, and all public transport stops, stations, and terminals.
October
21st Mandatory to cover airways in the streets if another person was closer than 2 m.
Sources: Vláda, 2020, vlada.cz, own interpretation
In March 2020, it first became mandatory to cover airways outside the place of residence with protective means (referred to as masks onwards). In May, this restriction was slightly relaxed. All restrictions regarding masks were relaxed in July and were only regulated on a regional level until September. In September masks were again made mandatory on public transport and in hospitals. This restriction was tightened to all indoor spaces, public transport, and all public transport stops, stations, and terminals. In October it also became mandatory to wear a mask in the streets if another person was closer than 2m (Vláda, 2020).
3.4 Conclusion
As seen from the listed restrictions, the government approach was stricter in the Czech Republic while the restrictions were quite relaxed in Sweden. While the Czech government used blanket bans plentifully in all sectors, the Swedish government often relied on recommendations and local restrictions. The variance of restriction level was higher in the Czech Republic where periods of strict restrictions were alternated by periods of no restrictions. In Sweden the regulation was kept at a more or less constant level throughout the year.
4. COVID-19 Government Response Tracker
The Blavatnik School of Government at Oxford University constructed a study on government responses to the COVID-19 pandemic worldwide. The study is ongoing and tracks government policies in different sectors. The response is divided into four policy indices: containment and health index, economic support index, stringency index, and an overall government response index. Stringency index and economic support index help illustrate the development of the situation in both respective countries.
4.1 Stringency Index
The stringency index covers school closing, workspace closing, public events cancellation, restrictions on gatherings, closure of public transport, the requirement to stay at home, movement restrictions, international travel controls, and public awareness campaigns. It is important to note that the indicators do not reference the effectiveness or the suitability of the measures. To put it simply, the indicators track the restrictions (Blavatnik School of Government, 2020).
Graph 6: Stringency Index
Source: Our World in Data, own interpretation
0.00 10.00 20.00 30.00 40.00 50.00 60.00 70.00 80.00 90.00
01.01.2020 01.02.2020
01.03.2020 01.04.2020
01.05.2020 01.06.2020
01.07.2020 01.08.2020
01.09.2020 01.10.2020
01.11.2020 01.12.2020
Stringency Index
Czech Republic Sweden
Graph 6 shows that the tracked measures were more severe in the Czech Republic until late April. From that point, until late October, the index shows the government restrictions in Sweden were stricter than in the Czech Republic. The graph also indicates that the variance of the restrictions differed between the two countries. While the restrictions were less volatile in Sweden, the Czech Republic restrictions varied more throughout the year.
4.2 Economic Support Index
The economic support index shows how much economic support was available.
The index covers income support and contract relief for households (Blavatnik School of Government, 2020).
Graph 7: Economic Support Index
Source: Our World in Data, own interpretation
In Graph 7 the evolution of the index in both Sweden and the Czech Republic is showed.
From March until July the economic support index of the Czech Republic was relatively high compared to Sweden. However, from July onwards the level of the index was the same in both respective countries and remained constant.
0 20 40 60 80 100 120
01.01.2020 01.02.2020
01.03.2020 01.04.2020
01.05.2020 01.06.2020
01.07.2020 01.08.2020
01.09.2020 01.10.2020
01.11.2020 01.12.2020
Economic Support Index
Czech Republic Sweden
5. Labor Market
An important topic regarding the COVID-19 situation is the labor market. Short time work allowance policies were introduced in Sweden alongside unemployment and sickness benefits. While the Swedish approach to the pandemic focused on refraining from closing the economy, there was still a significant negative impact on employment.
The most important response of the government was the Short Time Work Allowance Act. The main goal of this policy was to avoid termination of contracts for workers as it would increase unemployment and therefore the costs of unemployment benefits. Instead, firms could reduce the working hours of employees and the government provided financial support to compensate for the reduction in income (Johansson & Selberg, 2020).
Employers could reduce the working hours of their workers by 20%, 40%, or 60%.
The employee would then receive 90% of their salary. This financial support could be received for six months, with a possible extension to three months. Firms could apply from March 16th until the end of the year 2020 (Tillväxtverket, 2020).
In the Czech Republic, a program called Antivirus was implemented. Five different regimes of the program were introduced (Vláda, 2020).
Table 15: Program Anitvirus
Reason of compensation Compensation
employee was ordered a mandatory quarantine 60% of salary operation of a business banned by the government restrictions 100% of salary business prevented from assigning work to an employee based on an
absence of at least 30% employees 100% of salary operation of a business was disrupted due to the disturbed supply-chain 80% of salary
reduced demand for a service or products due to government
restrictions 60% of salary
Source: Vláda, vlada.cz, 2020
Table 15 shows compensations provided by the government. Other compensation programs were implemented for different sectors in the economy. While both countries offered compensation, the economic support index suggests more compensation in the Czech Republic.
6. Research on the Economic Impacts of COVID-19
As the pandemic is still ongoing at the time of writing this thesis, no final conclusion can be made. This topic is however, of immense importance. Therefore, many research papers have been conducted to evaluate the effects of COVID-19 and the restrictions on the economy.
A similar study of the impact on the economy was published by Andersen et al. (2020) where two Scandinavian countries were compared. Likewise, as in this thesis, Sweden was used to represent a milder approach of the government. Denmark then accounted for the approach of stricter regulations, using lockdown. The authors used data from Danske Bank, the second largest bank in Scandinavia, to evaluate the effect of restrictions on the consumer spending. The findings suggest that the impact was slightly more significant in Denmark, as consumption dropped by 25 % in Sweden and 29 % in Denmark. That indicates that even without significant government restrictions, the impact of the pandemic itself had largely affected consumer spending (Andersen et al., 2020).
Another research paper from April by Fernandes (2020) focused on the impact on the global economy and possible outcomes. Fernandes stressed the difference from other crises the world went through. This crisis is of global proportion, as is the pandemic.
Globalization also reached a new level, and the world is much more integrated now.
Simultaneously the interest rates are at their all-time low. An additional problem is the spillover effects throughout supply chains, as the pandemic severely disrupted them.
The world economy was also experiencing both supply and demand shocks. (Fernandes, 2020)
Chetty et al. (2020) examined the effect of COVID-19 and the related policies on spending and employment. The authors built a database that tracks data on economic
activity in the private sector. The study showed that consumer spending decreased significantly for the high-income groups, leading to small businesses laying employees off. According to the study, even after removing the restrictions, spending or employment did not increase significantly. Classical macroeconomic tools proved to be ineffective when health is in concern (Chetty et al., 2020).
Ozili and Arun (2020) analyzed the spillover effects on the global economy. Empirical data confirmed that lockdown, monetary interventions and bans on international travels affected economic activities negatively. By contrast, fiscal spending and a local ban on movement affected economic activities positively.
Pan and Yue (2021) conducted a study focusing on the multidimensional effect of the COVID-19 pandemic on the economy. They researched the impacts on individuals and different sectors, including tourism, education, transport, environment, globalization, and trade. As a research method, a questionnaire was shared with households and individuals in the eleven countries researched by the paper. The paper took the socioeconomic characteristics of the respondents into account. The results showed that only the environment was affected positively. All micro and macro level sectors are believed to be negatively affected in the perception of people (Pan & Yue, 2021).
Dong et al. (2021) explored the effect of the COVID-19 pandemic on individual consumption in the U.S. As an external shock, COVID-19 is expected to affect consumption and domestic savings behavior. This study used daily seasonally adjusted credit/debit card personal consumption expenditures from the first half of 2020.
The consumers were divided into groups according to their income level. The findings of the study showed that COVID-19 had a significant negative effect on personal consumption in the U.S. Consumer spending was relatively low during the first wave of the pandemic (Dong et al., 2021).
The effect on consumption was also researched by Baker et al. (2020). The study used data from a fintech company called SaverLife that encourages people to increase their savings. Using weekly data, the authors created regression models to examine the changes in behavior caused by the COVID-19 pandemic. The results show that spending increased in the first half of March. By contrast in the second half of March spending decreased significantly (Baker et al., 2020).
7. The Difference in Difference Method
The difference in difference (DiD) method is used frequently to evaluate the effectiveness of policies. However, it is not sufficient enough to compare outcomes in data after implementing the policy as many other factors and characteristics might affect the outcome. For purposes of the analysis, a treatment group and a control group are introduced. Thus, the DiD method combines the before-after approach of comparing data from periods without the respective policy with data after applying the policy and the treatment-control group approach where data from the groups with and without the policy are compared. This brings about two significant benefits. Firstly, if there is an essential factor that affects the outcome, it will be reflected in the control group as well, and this contribution will not be assigned to the policy. Secondly, even if there are essential differences in characteristics of the two groups, as long as those differences are constant over the evaluating period, the influence of these differences is insignificant.
The reason is that the DiD method focuses on the change in outcome over time rather than the outcome itself. If we have one control group, one treatment group, and two time periods, then the DiD estimate states:
𝐷𝑖𝐷 = %𝑥!!− 𝑥!"( − %𝑦!!− 𝑦!"(
Where 𝑥 represents the treatment group, 𝑦 represents the control group, 𝑡" stands for the time period after the introduction of the policy, and 𝑡# stands for the time period before the introduction of the policy (Fredriksson & Oliveira, 2019).
8. Effect on GDP
Firstly, the effects of both the COVID-19 pandemic and the restrictions associated with the pandemic on the gross domestic product are examined. In the following graph, we observe the gross domestic product growth rate as a percentage change compared to the same period in the previous year. To demonstrate the relationship between the GDP growth rate and the government restrictions, the stringency index is also represented in Graph 8.
Graph 8: GDP Growth Rate – the Czech Republic
Source: Eurostat, Our World in Data, own interpretation
*stringency index (right axis), growth rate (left axis, in percentage)
Graph 8 shows that in the second quarter of 2020, the GDP growth rate dropped significantly while the stringency index grew higher. In the third quarter, the GDP growth rate increased, and the stringency index decreased. From the first three quarters, it could be assumed that there is a negative relationship between the stringency index and the GDP growth rate. However, this assumption does not hold for the fourth quarter.
A possible explanation is that the initial effect from the beginning of the pandemic on the economy was greater as it was unexpected and caused panic.
20.00 25.00 30.00 35.00 40.00 45.00 50.00 55.00 60.00 65.00
-12 -10 -8 -6 -4 -2 0
2020-Q1 2020-Q2 2020-Q3 2020-Q4
GDP Growth Rate - the Czech Republic
GDP growth rate Stringency index
Graph 9: GDP Growth Rate - Sweden
Source: Eurostat, Our World in Data, own interpretation
*stringency index (right axis), growth rate (left axis, in percentage)
Graph 9 shows the same relationship in Sweden. For the first three quarters a positive link in the relationship between GDP growth rate and the stringency index is assumed.
The GDP growth rate developed in the same way in Sweden as in the Czech Republic.
The largest decrease in the GDP growth rate was recorded in the second quarter when the stringency index was the highest as well.
Graph 10: GDP Growth Rate
Source: Eurostat, own interpretation
0.00 10.00 20.00 30.00 40.00 50.00 60.00
-8 -7 -6 -5 -4 -3 -2 -1 0 1
2020-Q1 2020-Q2 2020-Q3 2020-Q4
GDP Growth Rate - Sweden
GDP growth rate Stringency index
-11 -9 -7 -5 -3 -1 1 3
2019-Q1 2019-Q2 2019-Q3 2019-Q4 2020-Q1 2020-Q2 2020-Q3 2020-Q4
GDP Growth Rate
Czech Republic Sweden
Graph 10 illustrates the evolution of the GDP growth rate in both countries in the years 2019-2020 to show the change in 2020. It can be assumed that it was caused by the COVID-19 pandemic. The evolution had the same trend in both countries.
The GDP growth rate was the lowest in the second quarter of 2020. However, the decrease was larger for the Czech Republic than for Sweden. In 2019 the GDP growth rate was higher in the Czech Republic, in 2020 GDP growth rate was higher in Sweden.
We suppose that this relative decrease compared to Sweden was caused by the higher level of restrictions in the Czech Republic.
To test the effect of the COVID-19 pandemic on the economy a difference in difference model (1) is built:
(1) 𝑋 = 𝛽!+ 𝛽"∗ 𝑇𝑖𝑚𝑒 + 𝛽#∗ 𝑇𝑟𝑒𝑎𝑡𝑚𝑒𝑛𝑡 + 𝛽$∗ 𝑇𝑖𝑚𝑒 ∗ 𝑇𝑟𝑒𝑎𝑡𝑚𝑒𝑛𝑡 + 2 𝛾%
&
%'"
∗ 𝑍%+ 𝑢
X is the explained variable. GDP growth rate, GDP in million euros, consumption growth rate, saving rate, unemployment rate, and the volume index of industrial production are set as dependent variables and serve as indicators of the state of the economy. 𝑇𝑖𝑚𝑒 ∗ 𝑇𝑟𝑒𝑎𝑡𝑚𝑒𝑛𝑡 is the difference in difference variable. The Czech Republic is set as the treatment group. Z represents the following control variables. The total number of reported deaths due to COVID-19 and the total number of reported COVID-19 cases in the given period are used to monitor the effect of the development of the pandemic in the given country The stringency index and the economic support index are used to control for the different level of the restrictions throughout the year. The above-listed government measures in the Czech Republic suggest that they were of a higher level.
However, the stringency index shows that restrictions were tighter in Sweden for a large part of 2020. To control for the differences in the two respective economies four other control variables are used: percentage of the population with tertiary education, GDP per capita in the given year, the economic sentiment indicator, and export as a percentage of GDP in the respective year. The economic sentiment indicator is a weighted average of responses to a questionnaire addressed to firms in five sectors covered by the EU Business and Consumer Surveys and consumers (Eurostat,2020). To test the robustness of the results, there are five different models for each dependent variable. Different control variables are omitted in the models based on their statistical or possible factual insignificance.
