The COVID-19 (coronavirus) pandemic is entailing huge costs worldwide. To help developing countries formulate policy responses to minimize negative impacts of the COVID-19, possible size and duration of the shocks on most vulnerable countries, i.e., least developed countries (LDCs) and Small Island Developing States (SIDS), and their resilience to overcome the shocks need to be assessed. This paper quantitatively examines possible paths of LDCs and SIDS recovering from the impacts of the COVID-19 crisis, using an autoregressive model of income growth and a panel regression model of external demand for LDCs and SIDS. Evidence from the experience of the 2007-08 global financial crisis suggests that the income growth of LDCs and SIDS had not recovered to the level of pre-crisis rates even 5 years after the crisis. This suggests a slower recovery for many LDCs and SIDS, while developed economies were able to achieve a quick recovery. The magnitude of current COVID-19 crisis relative to previous shocks is unknown, and so the regression analysis suggested that, if income in advanced economies fell by 6 per cent in 2020 and bounced back in 2021, growth of per capita income in LDCs and SIDS may need about 4 to 5 years to be able to return to the projected path under the baseline scenario without the COVID-19 crisis. The actual speed and duration of recovery in LDCs and SIDS are likely to be slower and longer, considering other factors, such as additional impacts from shocks related to commodity prices and climate change.

JEL: E17: Macroeconomics and Monetary Economics / General Aggregative Models / Forecasting and Simulation: Models and Applications ; F47: International Economics / Macroeconomic Aspects of International Trade and Finance / Forecasting and Simulation: Models and Applications ; O10: Economic Development, Innovation, Technological Change, and Growth / Economic Development / General ; O47: Economic Development, Innovation, Technological Change, and Growth / Economic Growth and Aggregate Productivity / Empirical Studies of Economic Growth ; Aggregate Productivity ; Cross-Country Output Convergence ; O57: Economic Development, Innovation, Technological Change, and Growth / Economywide Country Studies / Comparative Studies of Countries

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  • Published online: 16 Jun 2021
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