Fear, Lockdown, and Diversion: Comparing Drivers of Pandemic Economic Decline 2020 by Austan Goolsbee and Chad Syverson published by Becker Friedman Institute (2020).
“The collapse of economic activity in 2020 from COVID-19 has been immense. An important question is how much of that collapse resulted from government-imposed restrictions on activity versus people voluntarily choosing to stay home to avoid infection. This paper examines the drivers of the economic slowdown using cellular phone records data on customer visits to more than 2.25 million individual businesses across 110 different industries. Comparing consumer behavior over the crisis within the same commuting zones but across state and county boundaries with different policy regimes suggests that legal shutdown orders account for only a modest share of the massive changes to consumer behavior (and that tracking county-level policy conditions is significantly more accurate than using state-level policies alone). While overall consumer traffic fell by 60 percentage points, legal restrictions explain only 7 percentage points of this. Individual choices were far more important and seem tied to fears of infection. Traffic started dropping before the legal orders were in place; was highly influenced by the number of COVID deaths reported in the county; and showed a clear shift by consumers away from busier, more crowded stores toward smaller, less busy stores in the same industry. States that repealed their shutdown orders saw symmetric, modest recoveries in activity, further supporting the small estimated effect of policy. Although the shutdown orders had little aggregate impact, they did have a significant effect in reallocating consumer activity away from “nonessential” to “essential” businesses and from restaurants and bars toward groceries and other food sellers.
The spread of the SARS-CoV-2 virus and its associated COVID-19 disease has had unprecedented effects on economic activity around the world. In an effort to limit the spread of the disease, many governments adopted stay-at-home/shelter-in-place orders. That ignited a debate over “re-opening” and whether the health benefits from their slowing of the virus outweighs the economic damage they did.
It is not clear, however, that the economic decline actually came from the lockdown orders. By many accounts, anxious individuals engaged in physical distancing on their own accord. Understanding the size of that effect is critical policy question. If fear rather than policy drives the economics, the economic stimulus from repealing the orders may be considerably smaller than some might predict.
In this paper, we estimate the causal effect of government policy on the economy during the initial spread of COVID-19 in the U.S. using data on foot traffic at 2.25 million individual businesses. Our empirical strategy separates the effects of voluntary distancing from that of policy orders by comparing differences in foot traffic across businesses within commuting zones that span jurisdictions facing differing legal restrictions. This leverages two related types of variation: businesses in border-spanning commuting zones where jurisdictions impose of shelter-in-place orders at different times (e.g., northern Illinois when Illinois placed a sheltering order on March 20th while Wisconsin waited until the following week), and businesses in commuting zones where a jurisdiction never imposed an order (e.g., the Quad Cities area, where the Illinois towns of Moline and Rock Island faced stay-at-home orders but bordering Davenport and Bettendorf, Iowa did not). We collect data on the shutdown policy conditions at the county level, rather than relying on statelevel laws as in most of the existing literature, because many of the hardest hit counties in the country imposed shutdown orders earlier than their states did.
The results indicate that legal shutdown orders account for a modest share of the massive overall changes in consumer behavior. Total foot traffic fell by more than 60 percentage points, but legal restrictions explain only around 7 percentage points of that. In other words, comparing two similar establishments within a commuting zone but on opposite sides of a shelter-in-place (S-I-P) order, both saw enormous drops in customer activity. The one on the S-I-P side saw a drop that was only about one-tenth larger. The vast majority of the decline was due to consumers choosing of their own volition to avoid commercial activity…”
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