The business effects of pandemics – a rapid literature review

ERC Insight Paper

Associated Themes
  • COVID-19
  • Productivity and performance

This review considers the existing evidence on the business effects of pandemics, with a particular focus on the impact on small and medium enterprises (SMEs). Evidence from previous pandemics is reviewed, and in addition, we provide an overview of early assessments of the emerging evidence on the business impacts of the COVID-19 pandemic on Chinese firms and other related businesses.

Evidence on the 1918 influenza pandemic in the US suggests higher mortality in urban areas and higher working-age mortality – a very different pattern to COVID-19. Shutdowns did cause significant losses for many businesses, especially those in the service and entertainment industries that suffered double-digit losses in revenue. Other businesses that specialised in health-care products experienced gains in revenue. The 1918 pandemic caused labour shortages in the US as well as longer-term productivity benefits. These were not repeated in other countries. Scenario-based studies for the US and UK have also examined potential pandemic effects and may provide a more robust indication of potential medium-term effects from COVID-19.

Early evidence from the COVID-19 pandemic in China emphasises the severity of the short-term effects on SMEs. In February 2020, 30 per cent reported that, due to a cash shortage, they would be able to sustain their business for no more than three months; 30 percent reported that they would be able to sustain their business for six to twelve months. Furthermore, 30 per cent of firms have seen their income fall by more than 50 per cent, with almost a third reporting a 20 to 50 per cent reduction. Three months after the COVID-19 outbreak in China, many small businesses are not working at full capacity. Many employees continue to work from home, and business owners attempt to fix broken supply chains and look for new domestic and overseas contracts. Estimates suggest that each ten-day period of lost work in the Chinese economy reduces quarterly GDP growth by 0.39 to 0.46 percent.