Globalization and COVID-19 Nexus

Lessons from the Rational Expectations Model
Representational Pic
Representational Pic

Economists argue that corona repercussions are going to beworse than the global financial crisis of 2008. Empirical studies andliterature demonstrate that coronavirus disease 2019 (COVID-19) has had anincreasing trend thereby world entering a more thoughtful and regulated phase.We have seen the world becoming a gated globe (Greg, 2008) and a gauged globe(Qadri & Bhat, 2017). Now, with this pandemic, it is becoming a "regulatedglobe". According to health and economic reports at a different level, barriershave been created to check the free movement of people, trade, and money.However, such barriers are not all mischievous even though economies areaffected. We argue that COVID-19 effects can be lessened if not totallyvanished, and for that we need to allow only those economies to trade andinteract from which all paybacks and benefits can be rationally calculated. Inorder to understand the economic impact of COVID-19 at a national and globallevel, it is very important to have dual things. On the one hand, countriesshould maintain their international relations pragmatically, and on anotherhand, there should be a good rational construction (connection) among countries(trading partners). For a better and comprehensive understanding of theeconomics of COVID-19, we need a good interface among micro-economy, healtheconomy, political economy, and public economy. In addition, we must allowknowledge to flow freely among the countries so as to minimize the COVID-19waves.

The role of human capital and knowledge in the growth anddevelopment process has been in debate for the past many decades (Lucas, 1988;Romer, 1992). Existing literature indicates about the knowledge andgrowth-developmental positive connections (Solow, 1957) and argues that theeconomic inequalities (regional or global) we witness today are a result of ourfailure to manage the nexus between two. Accordingly, it is high time to findout the best management tools. In a globalised world, divergent domesticeconomies need to be considered and reshaped into the system through properinternational relations and processes alongside rational agreements andtransactions. It is really important to face global challenges in general andsustainability and pandemic ones in particular. We know that globalization isan unending process with cultural, economic, political, technical, and digitalattributes too. But, let's realize that it should not be treated in an evilspirited manner rather it should be rationally characterized for the reasonthat it is based upon rational expectations (Muth, 1961).

The rational expectations theory declares that there is nosystematic variation in our results from what people expected them to be. Thetheory gets impetus from the famous quote of Abraham Lincoln "You can fool someof the people all of the time, and all of the people some of the time, but youcannot fool all of the people all of the time." Rational expectation theoristsadmit that we have a strong tendency towards making predicting errors, but thatin no way makes our claim and recommends that there is tenacious or persistenthappening of errors in the world. Moreover, they argue that people behave oract in order to achieve two important microeconomic goals of consumers andproducers: maximization of utility (for consumers) and maximization of profits(for producers). Economies should not only forecast the benefits and costs ofglobalization rationally but also forecast the economics of shocks (likeCOVID-19) rationally. By looking from the grass-root level, we see thatglobalization is deep-rooted in this pandemic and for that reason, there is aneed for proper interaction between globalization and COVID-19. Everyaffected country must forecast the costs and benefits of this interaction indifferent ways and means. And one such economic means is Spillover effectswhich are by and large economic development effects. It is an event in aneconomy generating a ripple effect on other economies, generally more dependentones. It can be caused in an economy through recessions and depressions ormacroeconomic events such as COVID-2019. So, this virus has spillover effectswhich must be lessened through complete health-economic stimulus packageprioritizing health care expenditure to take account of the spillover andmultiplier effects of coronavirus since it has more spillover effects for thewhole world.

Author is ICSSR Doctoral Fellow pursuing Ph.D. in Economics at Department of Economics, Central University of Kashmir.

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