The Effect of Pandemics on Domestic Credit: a Cross-Country Analysis

Abstract

Using a panel of 140 countries covering the period 1996-2018, this paper examines how previous pandemics (such as SARS, MERS, Ebola, Swine flu, etc.) have influenced the lending behavior of banks. We take advantage of a new index developed by Ahir et al. (2020) which measures discussions about pandemics at the country level. Our findings reveal that uncertainty related to pandemics significantly hamper domestic credit available to the private sector. The negative effect of pandemics on credit levels is more prevalent for the low-income & emerging economies and non-OECD countries.