Several media have paid attention to a study conducted by Philip Hans Franses, Professor of Applied Econometrics at Erasmus School of Economics. In his study published in ESB (24 April 2023), Franses investigated the economic costs of the Covid-19 pandemic in terms of lost productivity in the Netherlands.
Estimating an alternative course of the economy
Franses notes that during the pandemic several studies investigated the potential effects of the pandemic on the Dutch economy. However, these studies were done while we were in the pandemic. To make a good estimation of how much gross domestic product has been lost due to the pandemic, the Professor tried to assess the likely course of the economy in a situation without Covid-19.
Franses estimated this course of the economy via a first-order autoregressive model for the yearly growth numbers, and by extending the trend line into the quarters during corona. Comparing this fictional scenario with the real scenario, the professor saw that in the third quarter of 2021, the real gross domestic product was roughly equal again to the gross domestic product based on the scenario without Covid-19. So, the negative shocks of the pandemic have worn off around the third quarter of 2021.
Lost gross domestic product
The productivity loss for the Dutch economy can then be estimated by summating the differences between the true course of the economy and the course of the economy without Covid-19. Specifically, the period that ranges from the first quarter of 2020 up to the second quarter of 2021. Franses concludes that this difference is estimated to be 65 billion euro plus or minus 15 billion euro. The Professor puts that number into perspective by showing that it is roughly similar to 3.700 euro per Dutch citizen.