Faculty Interview with Professor Tarek Hassan
With the interest generated by Professor Tarek Hassan’s (TH) research paper (Firm-level Exposure to Epidemic Diseases: COVID-19, SARS, and H1N1), the department enlisted Professor Restrepo (PR) to learn more about the scope of Professor Hassan’s research.
PR: What is the elevator pitch for this paper? What are you hoping to show?
TH: Our goal is to measure how firms around the world are affected by coronavirus. Knowing what specific firms are struggling with will be essential for forming an effective policy response that can save jobs and prevent bankruptcies.
PR: How did this project begin?
TH: We have been working for years on text-based methods in macro. This is an instance where textual analysis can provide information much faster and for a broader set of firms than other methods. For example, surveying thousands of firms around the globe is costly and takes time to set up. Similarly, accounting data will not be available for several months, long after policy decisions have already been made.
PR: One of your findings is that firms rarely express financing concerns. Is this specific to your sample of firms? Within your data, are small firms more likely to voice concerns about financing their operations in the upcoming months?
TH: In the first quarter of 2020 financing was not an issue we saw much of. Only 2.5% of firms that discussed any negative impacts of Covid-19 mentioned lack of finance. However, I suspect this might change as time goes on and balance sheets get weaker due to the beginning recession.
PR: Should we think about the pandemic primarily as a supply shock (a reduction in the supply of labor affecting a firm and its suppliers) or as a demand shock (a reduction in consumer purchasing)? Can your data help disentangle between which of these two channels the pandemic affects the economy?
TH: Yes, we measure separately which firms are worried about demand and which instead worry about their supply chains, capacity reductions, employee welfare, or the labor market. The bad news is that all of the above are frequently mentioned surrounding negative discussions of Covid-19. In other words, the current crisis manifests for many firms simultaneously as a supply and a demand shock, though this certainly varies by country and industry.
PR: Could you provide some examples of firms or sectors that could benefit from the pandemic? Besides businesses that might benefit in the short term (pharmaceutics or farming), are there sectors poised to benefit in the long run?
TH: A clear pattern in the early days of the pandemic was that firms that dealt with SARS in the past felt they were better prepared for Covid-19, though it looks like that optimism might be fading. The other pattern is pharma, health care, online education. All of those are clearly upbeat in terms of their own bottom line.
PR: In terms of firms’ concerns and the industries most exposed to epidemic diseases, how is the Covid-19 pandemic different from previous experiences?
TH: Covid is exceptional at least in two ways. First, all previous pandemics and epidemics in our sample, such as SARS and H1N1 were mentioned much less frequently. SARS appeared in 25% of transcripts back in 2002 Q2. All others are never mentioned in more than 5% of transcripts at any given time. Covid-19 got above 50% in 2020Q1. Second, no other disease hit practically all large economies at the same time. If you look at the time series for SARS for example, there are different peaks in discussions for firms in different countries. With Covid-19, everyone is going through the roof at the same time.
PR: One common (and perhaps misleading argument) is that the decline in demand is partly due to the policies enacted to fight the pandemic. If people were allowed to leave their houses and business were allowed to open, then demand would not decline, or so the argument goes. Others have pointed out that, even if restrictions were lifted, people would still consume little due to precaution and fears of going out. Can your data help us understand if firms perceive the decline in demand to be a consequence of the policies enacted the slowdown the pandemic or whether they expect demand to be lower anyway? For example, are firms in countries following different policies voicing different concerns?
TH: That is a great question that we should look into. I am not sure how much we can do. My sense, and this is just an opinion, is that demand will not recover before the public health disaster is contained. I just had a very interesting conversation with our colleague Laura White who is an epidemiologist on the medical campus (https://scholar.google.com/citations?user=ZD5-JkwAAAAJ&hl=en). She is collecting granular data on policy interventions and planning to post it online. Once we have that data, I think we might get a better handle on these kinds of questions.