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• 29 Aug 2024
• Research & Ideas

Shoot for the Stars: What to Know About the Space Economy

Outer space has come a long way since the 1960s. Matthew Weinzierl explains the current state of the space economy, highlighting the various opportunities for businesses hidden among the stars.

• 22 Aug 2024

Reading the Financial Crisis Warning Signs: Credit Markets and the 'Red-Zone'

While fears about slowing economic growth have roiled stock markets in recent weeks, credit markets remain stable and bullish, and a recession hasn't materialized as some analysts predicted. Robin Greenwood discusses the market conditions that are buoying the economy—and risk signals to watch.

• 05 Aug 2024

Watching for the Next Economic Downturn? Follow Corporate Debt

Rising household debt alone isn't enough to predict looming economic crises. Research by Victoria Ivashina examines the role of corporate debt in fiscal crashes since 1940.

• 23 Jul 2024

Forgiving Medical Debt Won't Make Everyone Happier

Medical debt not only hurts credit access, it can also harm one's mental health. But a study by Raymond Kluender finds that forgiving people's bills—even $170 million of debt—doesn't necessarily reduce stress, financial or otherwise.

• In Practice

The New Rules of Trade with China: Navigating Tariffs, Turmoil, and Opportunities

Trade tensions between the US and China have continued well beyond the Trump Administration's tariffs. Harvard Business School faculty offer insights for leaders managing the complexities of doing business with the world's second-largest economy.

• 18 Jun 2024

Central Banks Missed Inflation Red Flags. This Pricing Model Could Help.

The steep inflation that plagued the economy after the COVID-19 pandemic took many economists by surprise. But research by Alberto Cavallo suggests that a different method of tracking prices—a real-time model—could predict future surges better.

• 28 May 2024

Job Search Advice for a Tough Market: Think Broadly and Stay Flexible

Some employers have pared staff and reduced hiring amid mixed economic signals. What does it mean for job seekers? Paul Gompers, Letian Zhang, and David Fubini offer advice for overcoming search challenges to score that all-important offer.

• 21 May 2024

What the Rise of Far-Right Politics Says About the Economy in an Election Year

With voters taking to the polls in dozens of countries this year, could election outcomes lean conservative? Paula Rettl says a lack of social mobility and a sense of economic insecurity are some of the factors fueling far-right movements around the world.

• 11 Apr 2024

Why Progress on Immigration Might Soften Labor Pains

Long-term labor shortages continue to stoke debates about immigration policy in the United States. We asked Harvard Business School faculty members to discuss what's at stake for companies facing talent needs, and the potential scenarios on the horizon.

• 01 Apr 2024

Navigating the Mood of Customers Weary of Price Hikes

Price increases might be tempering after historic surges, but companies continue to wrestle with pinched consumers. Alexander MacKay, Chiara Farronato, and Emily Williams make sense of the economic whiplash of inflation and offer insights for business leaders trying to find equilibrium.

• 29 Jan 2024

Do Disasters Rally Support for Climate Action? It's Complicated.

Reactions to devastating wildfires in the Amazon show the contrasting realities for people living in areas vulnerable to climate change. Research by Paula Rettl illustrates the political ramifications that arise as people weigh the economic tradeoffs of natural disasters.

• 10 Jan 2024

Technology and COVID Upended Tipping Norms. Will Consumers Keep Paying?

When COVID pushed service-based businesses to the brink, tipping became a way for customers to show their appreciation. Now that the pandemic is over, new technologies have enabled companies to maintain and expand the use of digital payment nudges, says Jill Avery.

• 17 Aug 2023

‘Not a Bunch of Weirdos’: Why Mainstream Investors Buy Crypto

Bitcoin might seem like the preferred tender of conspiracy theorists and criminals, but everyday investors are increasingly embracing crypto. A study of 59 million consumers by Marco Di Maggio and colleagues paints a shockingly ordinary picture of today's cryptocurrency buyer. What do they stand to gain?

• 15 Aug 2023

Why Giving to Others Makes Us Happy

Giving to others is also good for the giver. A research paper by Ashley Whillans and colleagues identifies three circumstances in which spending money on other people can boost happiness.

• 13 Mar 2023

What Would It Take to Unlock Microfinance's Full Potential?

Microfinance has been seen as a vehicle for economic mobility in developing countries, but the results have been mixed. Research by Natalia Rigol and Ben Roth probes how different lending approaches might serve entrepreneurs better.

• 23 Jan 2023

After High-Profile Failures, Can Investors Still Trust Credit Ratings?

Rating agencies, such as Standard & Poor’s and Moody's, have been criticized for not warning investors of risks that led to major financial catastrophes. But an analysis of thousands of ratings by Anywhere Sikochi and colleagues suggests that agencies have learned from past mistakes.

• 29 Nov 2022

How Much More Would Holiday Shoppers Pay to Wear Something Rare?

Economic worries will make pricing strategy even more critical this holiday season. Research by Chiara Farronato reveals the value that hip consumers see in hard-to-find products. Are companies simply making too many goods?

• 21 Nov 2022

Buy Now, Pay Later: How Retail's Hot Feature Hurts Low-Income Shoppers

More consumers may opt to "buy now, pay later" this holiday season, but what happens if they can't make that last payment? Research by Marco Di Maggio and Emily Williams highlights the risks of these financing services, especially for lower-income shoppers.

• 01 Sep 2022
• What Do You Think?

Is It Time to Consider Lifting Tariffs on Chinese Imports?

Many of the tariffs levied by the Trump administration on Chinese goods remain in place. James Heskett weighs whether the US should prioritize renegotiating trade agreements with China, and what it would take to move on from the trade war. Open for comment; 0 Comments.

• 05 Jul 2022

Have We Seen the Peak of Just-in-Time Inventory Management?

Toyota and other companies have harnessed just-in-time inventory management to cut logistics costs and boost service. That is, until COVID-19 roiled global supply chains. Will we ever get back to the days of tighter inventory control? asks James Heskett. Open for comment; 0 Comments.

Questions and Answers about the Financial Crisis

All bond prices plummeted (spreads rose) during the financial crisis, not just the prices of subprime- related bonds. These price declines were due to a banking panic in which institutional investors and firms refused to renew sale and repurchase agreements (repo) - short-term, collateralized, agreements that the Fed rightly used to count as money. Collateral for repo was, to a large extent, securitized bonds. Firms were forced to sell assets as a result of the banking panic, reducing bond prices and creating losses. There is nothing mysterious or irrational about the panic. There were genuine fears about the locations of subprime risk concentrations among counterparties. This banking system (the "shadow" or "parallel" banking system) - repo based on securitization - is a genuine banking system, as large as the traditional, regulated and banking system. It is of critical importance to the economy because it is the funding basis for the traditional banking system. Without it, traditional banks will not lend and credit, which is essential for job creation, will not be created.

This was prepared for the U.S. Financial Crisis Inquiry Commission. Thanks to Lori Gorton, Stephen Partridge-Hicks, Andrew Metrick, and Nick Sossidis for comments and suggestions. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research.

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7 economic trends to watch in 2024

Every year has its economic challenges — some old, some new. But in an election year — where control over Congress and the White House are at stake — policies dealing with inflation, labor disruptions, the rise of artificial intelligence, and other economic issues take on added significance. Below, seven experts affiliated with the Stanford Institute for Economic Policy Research ( SIEPR ) offer their research-based insights into what’s in store for the U.S. economy in the year ahead.

“These economic policy questions are right in our wheelhouse at SIEPR, and we’re very fortunate to have more than 120 faculty members tackling pressing economic issues and generating research that leads to better policies. The fact that we are in an election year makes their work even more important as we strive to get rigorous, nonpartisan research and analysis into the hands of policymakers, candidates, business leaders and voters.”

— Mark Duggan, The Trione Director of SIEPR and The Wayne and Jodi Cooperman Professor of Economics

The consumer disconnect in an election year

Neale Mahoney , George P. Shultz Fellow at SIEPR and Professor of Economics, School of Humanities and Sciences:

The U.S. economy is strong by all objective measures, with low unemployment, robust GDP growth, and easing inflation. Yet consumer sentiment is decidedly weak, with measures of the economic indicator at levels last seen during the global financial crisis. Given the strong correlation between consumer sentiment and election outcomes, it’s especially important to understand why there’s a disconnect ahead of this November’s vote.

Ryan Cummings , a visiting PhD student at Stanford, and I recently dived into the data and documented two new findings. First, sentiment isn’t as bad as the numbers suggest due to partisan skew. While both Democrats and Republicans rate the economy more strongly when their party controls the White House, Republicans cheer louder and boo harder, in effect, drowning out Democratic voices and artificially depressing consumer sentiment.

Second, consumer sentiment is being dragged down by prior years’ inflation . While prices rose only 3.2 percent this year, they increased by a cumulative 18.6 percent over the last 3 years, and these prior price increases are still weighing negatively on consumers. However, we also found that the downward drag from inflation has a half-life of about a year. This means that, if  inflation continues to ease over the next 12 months, sentiment should improve as the post-pandemic inflation surge recedes. 

These are challenging times for forecasting. The rise of social media as a prominent information source — with its tendency to amplify bad news — may be fraying the link between economic fundamentals and consumer sentiment. The partisan factors we document may intensify as the November election approaches. How consumer sentiment will trend, and what we should be making of these data in the current environment, are questions that will only be fully answered in the course of time.

COVID-19’s lingering labor effects

Gopi Shah Goda , SIEPR Senior Fellow and Professor (by courtesy) of Economics, School of Humanities and Sciences:

The COVID-19 pandemic disrupted many sectors of the economy, including labor markets. My research with Evan Soltas estimates that excess COVID-19-related absences from work through mid-2022 resulted in approximately 500,000 fewer people participating in the labor force. Other work has shown that more working-age adults are reporting serious difficulty remembering, concentrating or making decisions, and the increases are higher among women and non-college graduates. In addition, the share of workers who are not employed and not looking for work due to disability or illness is higher than its pre-pandemic trend.

COVID has clearly had harmful effects on the U.S. workforce overall, but there’s some good news heading into 2024. Between January and October of 2023, excess COVID-19-related absences from work were approximately 15 percent higher than pre-pandemic levels. While still elevated, this represents a sharp reduction from excess absences in March 2020-December 2022, which were 61 percent higher than pre-pandemic levels.

Going forward, the lower rate of excess absences in 2023 may suggest that the recent increase in disability rates could slow down if the two are causally related. However, the growing share of the population reporting cognitive difficulties — likely from a COVID-19 infection — suggest that programs and policies may be needed to support workers still struggling with pandemic-related illnesses.

Congress' fiscal cliff problem

John Cochrane , SIEPR Senior Fellow and the Rose-Marie and Jack Anderson Senior Fellow at the Hoover Institution:

When you kick the can long enough, you run out of road. Our government’s inability to fix its finances means we’re pretty close to that point. 

The U.S. has as much federal debt now as it did at the end of WWII. The Congressional Budget Office projects debt will grow exponentially. The federal deficit is 5.8 percent of GDP, though the economy is humming. The CBO projects 3 percent of GDP primary deficits — before interest payments — forever.

The problem is not this year or next. The government has made pension and health care promises that it cannot pay for. Trillion-dollar spending on industrial policies, subsidies, transfers, and bailouts don’t help. When the next recession, crisis, war or pandemic hits, the U.S. may simply be unable to borrow.

Higher tax rates are not the answer. There aren’t enough “rich” or “corporations” to soak for this much money. We could finance our European-style benefits with European middle-income taxes, but we would get stagnant European incomes in the bargain. 

Tax revenue equals tax rate times income. Higher tax rates lead to lower long-run income, blunting revenue. The best way out is more long-term income growth.

Our mantra should be “reform” and “incentives,” not “cuts” and “austerity.” Fundamental tax reform, such as the introduction of a consumption tax, can raise substantial revenue with less economic damage. Change at the edges, such as the debate over extending the 2017 cuts, won’t address the immense problem. Reformed social program incentives can save money and help people more. Regulatory reform can speed growth. Smart immigration can bring in more taxpayers.

Year of the WFH pancake

Nicholas Bloom , SIEPR Senior Fellow and the William D. Eberle Professor of Economics, School of Humanities and Sciences:

It’s the $64,000 workplace question: Will workers continue to be allowed to work from home (WFH)? I predict the rates of WFH will, as the British say, be “flat as a pancake” this year and into 2025 before picking up again in 2026.

I’ve previously likened the WFH revolution to the Nike swoosh. From 2020 to the end of 2022, levels of WFH dropped as the pandemic-induced surge waned. In 2023 we saw rates stabilize  as attempts by employers to bring workers back into the office largely failed.

But WFH rates will start to slowly climb again. This will be driven by ever-improving technologies for remote working. We’ll see innovations around, for example, audio and visual, apps, holograms, and augmented reality. Looking back over my life, we have seen working from home go from paper-based in the 1970s and 1980s, to supported by PCs in the 1990s, with the internet in the 2000s and then cloud computing and video calls in the 2010s. 

The recent explosion in WFH has accelerated this rate of technological progress. Every hardware and software firm I talk to is targeting this massive new market of WFH employees and firms. What the future will bring is not clear, but it clearly will be better and more efficient than 2023 tech.

My message for 2024: Underneath WFH’s “pancake” year is a massive revolution. WFH is here to stay and looking to a rapidly growing future.

The need for Treasury market reforms

Darrell Duffie , SIEPR Senior Fellow and the Adams Distinguished Professor of Management and Professor of Finance, Stanford Graduate School of Business:

U.S. Treasury securities are the world’s safe-haven asset — not only because of their low default risk but also because of the depth and liquidity of the market in which they are traded. In March 2020, that safe-haven role was tested when COVID unleashed a dash for cash caused by severe selling of Treasuries. The dealers who handle essentially all investor trading of Treasuries could not adequately handle the surge of demands. Catastrophe was averted only when the Federal Reserve took unprecedented steps to restore liquidity in the market.

According to a recent Federal Reserve Bank of New York analysis that I co-authored, the crisis exposed structural weaknesses in the U.S. Treasury market that, if unaddressed, threaten its ability to remain a safe haven for global investors. The capacity of dealers to temporarily warehouse the flood of investor sales while they negotiate trades with buyers is critical. And yet, the total amount of Treasuries outstanding is growing rapidly relative to the intermediation capacity of dealers because of large and persistent U.S. fiscal deficits and the limited flexibility of dealer balance sheets. 

The resilience of the Treasury market should not be called into question just when its safe-haven role becomes critical. Significant structural improvements to the Treasury market are needed in 2024 and beyond. Policy options include broadening central clearing of Treasuries and all-to-all trade; boosting the intermediation capacity of dealers with real-time post-trade transaction reporting; improving capital regulations so they do not lower the overall capital buffers of globally systemic banks; and backstopping the Treasury market liquidity with transparent central-bank purchase programs.

The beginning of the end for non-competes

Mark Lemley , SIEPR Senior Fellow; the William H. Neukom Professor of Law, Stanford Law School; Director, Stanford Program in Law, Science & Technology :

The reinvigoration of antitrust enforcement will continue in 2024. The Federal Trade Commission in particular will continue to challenge mergers that it deems anticompetitive. It will also take a number of steps to open up the labor markets: It will ban or significantly restrict non-compete agreements that prevent workers from moving to competitors. It will challenge other restrictive employee agreements, from no-poach deals and arbitration secrecy clauses to overbroad nondisclosure agreements and "stay or pay" clauses.

These challenges will be met by skeptical courts trained in 40 years of Chicago School orthodoxy on the primacy of free markets. Entrenched companies that don’t like the idea of facing competition rather than agreeing to avoid it will howl. The November general election will likely determine the extent to which the pace of FTC enforcement continues beyond 2024. And if the FTC suffers setbacks in court, proponents of stricter enforcement may need to look to Congress to act.

For California, tough choices

Preeti Hehmeyer , Managing Director of California Policy Research Initiative (CAPRI) at SIEPR:

The coming year will be eventful for Californians, to say the least. Looking to the general election in November, many observers believe that the Golden State will be one of the most important battlegrounds for Congressional control. California also needs to climb out of its $31 billion budget deficit while dealing with the ongoing challenges of affordable housing, homelessness, extreme weather, and rising electricity costs. Politicians make the decisions, but CAPRI can help the state better understand the roots of its problems and choices going forward.

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Lessons on the Economics of Pandemics from Recent Research

• Michael Jenuwine

The spread of the COVID-19 pandemic has resulted in a dual public health and economic crisis. Many economic studies in the past few months have explored the relationship between the spread of disease and economic activity, the role for government intervention in the crisis, and the effectiveness of testing and containment policies. This Commentary summarizes the methods and findings of a number of these studies. The economic research conducted to date shows that adequate testing and selective containment measures can be effective in fighting the COVID-19 pandemic, and in the absence of adequate testing capabilities, optimal interventions involve social distancing and other lockdown measures.

The views authors express in Economic Commentary are theirs and not necessarily those of the Federal Reserve Bank of Cleveland or the Board of Governors of the Federal Reserve System. The series editor is Tasia Hane. This paper and its data are subject to revision; please visit clevelandfed.org  for updates.

The developing COVID-19 pandemic could be the worst global pandemic since the 1918 influenza pandemic and may have caused the largest economic contraction since the Great Depression. Because of the nature of this situation as both a public health crisis and an economic crisis, topics of paramount interest include understanding the relationship between the spread of disease and economic activity, the role for government intervention in the crisis, and the effectiveness of testing and containment policies. Economists have responded quickly to provide insights into these questions, yielding a rapidly growing body of research literature on the economics of pandemics.

This Commentary provides an overview of this research and highlights some of its key lessons. Our starting point is a long-standing model from epidemiology known as the “SIR model.” From that building block, we focus on analyses that extend the model to include economic considerations and examine strategies for managing the public health and economic effects of pandemics.

These extended models formalize a tradeoff—associated with shutdowns such as those commonplace in the United States and many other nations—between preventing disease spread and decreasing economic output. According to analyses of such models, in the long term, containment measures such as shutdowns are better than the alternative of taking no action to mitigate the spread of disease, and the addition of testing policies appears more favorable than shutdowns alone. Accordingly, we read the work to date by economists as calling for extensive testing. We also briefly introduce economic models operating outside of the SIR model and present some empirical findings that use prior pandemics to predict the potential impact of COVID-19 and that describe the real-time effects of COVID-19 as it unfolds.

Basic SIR Model from Epidemiology

The SIR model, originally developed by Kermack and McKendrick (1927), is a simple mathematical model of infectious diseases that divides the total population into three groups: S for susceptible (at risk of contracting the disease), I for infectious, and R for recovered, deceased, or otherwise immune. One particular variation of this model, developed by Imperial College London, has had a major impact on the policies of governments worldwide. 1 The model simulates the course of a disease by tracking changes over time in these three populations. The evolution of these populations depends importantly on two parameters. One parameter is the rate at which infected individuals encounter susceptible individuals and successfully transmit the virus (transmission rate). Importantly, recovered people are assumed to be immune from the disease, meaning they cannot be reinfected. 2 The other parameter is the rate at which infected people recover or die (sometimes referred to as the recovery rate, but more accurately as the removal rate, because these individuals are “removed” from the other two populations). (For technical details on the models described in this Commentary , see the online appendix .)

In a given week, new infections will be determined by the transmission rate, the number of individuals in the susceptible population, and the fraction of the population that is currently infected. In this formulation, the speed at which the epidemic spreads depends on the number of both susceptible and infected people because susceptible individuals can contract the disease only from infected individuals and infected individuals can transmit the disease only to susceptible individuals. Accordingly, the number of newly sick individuals will be added to the infected count and subtracted from the susceptible count. With the assumption of recovered individuals being immune, every week the number of infected individuals who have recovered or died from the disease is added to the removed count and subtracted from the count of those infected.

Much of the research by economists relies on a variation of this framework, known as the SEIR model, which adds a category of exposed (E) individuals to account for those who are infected but not yet infectious themselves. In the SEIR model, people have to have been exposed to the virus before they become infected; that is, exposure is a necessary first step for infection. The rate at which exposed individuals start showing symptoms and become infectious is denoted by an additional parameter; medically speaking, this rate is related to the virus’s incubation period. The population in the exposed category next week rises by the number of susceptible individuals who encounter the infected and become exposed, as in the SIR model. Also as in the SIR model, the number of new exposures depends on the transmission rate, the number of susceptible individuals, and the fraction of infected individuals in the population. The exposed population falls by the number of exposed individuals who develop symptoms and progress to infection each week. With this exposure category added, the infected count rises with the exposed becoming infected and falls (as in the SIR model) by the number of individuals recovering or dying from infection.

An important number in the SIR class of models is known as the “basic reproduction number” (denoted R 0 ), which corresponds to how many people the average infected person passes the disease to while infectious and in the absence of mitigation efforts. In these models, R 0 is determined by the ratio of the transmission and removal rates. Most estimates for COVID-19 range between 2.2 and 3.1, meaning that each infected person infects an average of between 2.2 and 3.1 new people before recovering. For comparison, the value of the 1918 influenza is estimated to be between 1.4 and 2.8 and that of seasonal influenza typically ranges between 0.9 and 2.1. 3

Atkeson (2020) uses an SEIR model with the added wrinkle that the transmission rate can change over time to account for containment measures such as quarantines. Containment measures that alter this transmission rate also change the rate of disease reproduction. The reproduction rate at various points in time is denoted R at time t or R t . Atkeson uses this model to simulate the course of the disease under varying paths of the reproduction rate. The first exercise assumes constant reproduction rates ranging from 1.8 to 3.0, all of which lead to infection rates above 1 percent within 150 to 200 days, with peak infection rates well above that. This scenario corresponds to the case in which no mitigation efforts are made. The next exercise examines the speed of mitigation by decreasing reproduction rates from 3.0 down to 1.6 over varying time horizons. This scenario corresponds to the case with mild mitigation efforts. Even the very fastest reductions lead to large infection rates over the course of 18 months. Finally, short-term but severe mitigation efforts, modeled as a rapid reduction of reproduction rates from 3.0 to under 1.0, followed by a gradual increase back to 3.0 as mitigation efforts are relaxed, lead to a temporary reduction in infection initially but still show more than 90 percent of the population’s becoming infected over the course of 18 months.

The key takeaway from Atkeson’s work is that unless the reproduction rates can be sustained at levels under 1.0 for sufficiently long duration, the disease will eventually affect large segments of the population, leading to a large number of fatalities.

SIR-based Models with Additional Economics

A number of studies have extended the SIR and SEIR models to include various aspects of economics. Some work has brought in macroeconomic modeling, linking infection to economic activity. Other work has focused on the best strategies for limiting or managing the spread of the disease, ranging from complete confinement (quarantines) to working from home when possible, with and without extensive testing. Additional research has addressed some of the complexities that arise when differences across individuals in jobs, income, and wealth levels are taken into account and their resultant implications for COVID-related policies.

Studies of Mitigation Policies

While the Atkeson model makes statements about disease dynamics, it does not account for any relationship between the spread of disease and the economy as a whole. Eichenbaum, Rebelo, and Trabandt (2020) remedy this by tying the likelihood of infection to participation in labor and consumption markets. In addition to the baseline level of transmission, transmission can occur between susceptible and infected individuals while consuming (such as while out shopping) or while working. 4 These modes of transmission, then, depend not just on how many people are susceptible and infected, but also on how much susceptible and infected people choose to consume or work. This calculation directly ties the rate of infection to individuals’ economic decisions.

On the economic side of the model, individuals choose how much to consume and how much to work. In doing so, they want to balance the utility they receive from consumption against the utility they receive from not working. The choices an individual makes change based on whether that person is susceptible, infected, or recovered. In particular, susceptible individuals may choose to consume and work less than others to lower the risk of becoming infected. Hence, even without mitigation measures, changes in individuals’ economic behavior reduce the spread of the virus—average consumption is estimated to fall by about 10 percent, just by virtue of people’s choosing to stay home more to avoid getting sick. The effect of individuals’ decisions also matters for the model’s epidemiological implications—compared to the basic SIR model, the infection peak decreases from 7 percent to 5 percent and the death toll decreases from 0.30 percent to 0.26 percent. Meanwhile, infected individuals are assumed not to take into account that their consumption and work habits may infect others, an externality that results in an inefficient outcome in which infected individuals choose to consume and work more than would be socially optimal.

The authors next estimate how the mitigation measures might alter this externality. They solve for optimal containment measures, which are modeled as a consumption tax and lump sum rebate, that maximize the discounted sum of utility from consumption and leisure for all agents in the economy. 5 The consumption tax directly reduces the incentive to participate in consumption activities and indirectly reduces the incentive to participate in the labor market by making consumption less attractive relative to leisure. This leads individuals to change their behavior and reduces their likelihood of becoming infected and infecting others. The tax revenue is then rebated lump-sum to the households so that the net tax is unchanged. This approach to the taxes and lump-sum transfers holds disposable income of households constant, and permits an assessment of the mechanisms at work without income changes muddying the picture. Relative to the laissez-faire economy with no mitigation measures, optimal containment reduces aggregate consumption even more, but it also reduces the peak level of infection and the death toll by changing the behavior of the infected. The authors estimate that the optimal containment measures will reduce peak level of infections from 5 percent to 3 percent of the population and the death toll from 0.26 percent to 0.21 percent of the population at the cost of consumption’s dropping an additional 18 percentage points.

Alvarez, Argente, and Lippi (2020) extend the basic SIR model to include lockdown measures and solve for an optimal lockdown policy that minimizes both the economic losses and the lives lost because of the pandemic. The key addition to their model is that a fraction of the population can be placed into lockdown or quarantine. When in lockdown, susceptible people cannot meet or become infected by any contagious people. However, people are less able to work when in lockdown, so there is an economic cost. An optimal lockdown policy over time is chosen to balance the loss of lives from COVID-19 against the loss of economic output because of the lockdown. Changes in the number of infected individuals are determined in the same way as in the basic SIR model except that only the fraction of individuals out of lockdown can pass along the disease to those not in lockdown. A parameter in their model governs the effectiveness of the lockdown. When it is 0, the lockdown is completely ineffective, and the disease dynamics boil down to the basic SIR model. Another small change is that infected individuals die at a rate that is determined as a function that is increasing in the number of infected people. This addition reflects a situation in which as more people are infected, the capacity to treat them is reduced, and the death rate increases.

The authors find that the optimal policy is a rapid and severe lockdown that peaks at 60 percent of the population and then slowly decreases to below 10 percent of the population by 15 weeks after the lockdown starts. These results are most sensitive to the effectiveness of lockdown, the value of statistical life, 6 and the rate at which the death rate increases in the number of infected people. A less effective lockdown makes the optimal lockdown time shorter as the economic costs of lockdown outweigh the benefits faster. For example, if the lockdown is not effective at all in reducing transmission rates, then its only effect would be to harm the economy, and the optimal lockdown would be none at all. Increasing the value of statistical life makes the optimal lockdown time longer as the benefits of lockdown in terms of lives saved are greater. Finally, assuming that the death rate is unaffected by the number of infected makes any lockdown suboptimal. This is because without any congestion in the healthcare system, the model assumes that resources such as hospital beds and ventilators will not need to be rationed in order for everyone in need to be treated, making the speed at which the infection spreads inconsequential to the overall death rate.

Jones, Philippon, and Venkateswaran (2020) also study optimal mitigation policies in an SIR-macro model. As in Eichenbaum, Rebelo, and Trabandt (2020), new infections are a function of the levels of consumption and labor of the susceptible and infected populations, but with an added element that working from home can reduce the rate of infections. Moreover, Jones, Philippon, and Venkateswaran (2020) assume that there is “learning by doing” in terms of a household’s ability to work from home, meaning that the more households work from home, the better they become at doing so. The optimal policy involves more drastic and earlier mitigation measures, compared to those in both Eichenbaum, Rebelo, and Trabandt (2020) and Alvarez, Argente, and Lippi (2020). This is because the model not only takes into account the negative effects of hospital congestion and high infection rates, but it also accounts for the time it takes for workers to become productive while working from home, so earlier mitigation measures allow for workers to become productive more quickly.

Studies of Testing Policies

We now turn to recent research that considers testing policies in addition to containment policies. Both Piguillem and Shi (2020) and Berger, Herkenhoff, and Mongey (2020) use an SEIR model as in Atkeson (2020) and assume that exposed asymptomatic individuals can also spread the disease. The Piguillem and Shi (2020) study is similar to Alvarez Argente, and Lippi (2020) in that the government can institute a lockdown or quarantine for a fraction of the population. However, Piguillem and Shi assume that all infected people who are showing symptoms ( I ) are placed into quarantine as a matter of course, so the lockdown affects people who are exposed but without symptoms ( E ) and those who are susceptible ( S ). In the absence of testing, exposed asymptomatic individuals cannot be identified as exposed but are still contagious, so a lockdown policy must be set as a fraction of both susceptible and exposed individuals. Testing allows the government to distinguish between susceptible and exposed individuals and thus to quarantine or enact lockdown policies more selectively.

The model shows that mass lockdown is optimal if there are no means of widespread testing, but increasing testing of subjects is superior to mass lockdown. However, these results are dependent on the economic cost of testing, which is unknown. These findings are consistent with Berger, Herkenhoff, and Mongey (2020), who demonstrate that the government can simultaneously ease lockdown measures and increase testing while keeping the overall mortality rate constant. For example, targeted lockdown and quarantine with testing reduces the economic output loss by 5 percentage points relative to a common lockdown and quarantine without testing.

Distributional Consequences

The SIR models described above do not feature the heterogeneous effects of COVID-19 and various mitigation efforts across income, wealth, age, or occupation. Kaplan, Moll, and Violante (2020) document that workers employed in sectors that are more contact intensive and offer less job flexibility (to work remotely), such as the leisure and hospitality sector, have lower income and wealth relative to workers employed in sectors that are less contact intensive and offer more flexibility, such as the information sector. This is important since the workers who are more likely to be adversely impacted by lockdown policies—those that work in contact-intensive and low-flexibility sectors—also tend to be the ones who have less savings to rely on for smoothing consumption. 7 Kaplan, Moll, and Violante add these dimensions to an SIR model within an otherwise standard Heterogeneous Agent New Keynesian (HANK) model—a model developed by Kaplan, Moll, and Violante (2018) that is often used to study the distributional effects of monetary policy—to find that in the absence of any public interventions, aggregate consumption falls by more than4 percent, and more than 1.5 percent of the initial population dies as a result of the pandemic.

Another paper that studies the distributional consequences of the pandemic is that of Glover et al. (2020), who extend the SEIR model by allowing for transmission rates to interact with the levels of consumption and labor supplied (as in Eichenbaum, Rebelo, and Trabandt, 2020) and by embedding these features into a macroeconomic model in which individuals differ by age and the sector in which they work. Adding the age dimension is especially relevant since the case fatality rates for COVID-19 vary dramatically for different age groups. In particular, older individuals have the most to gain from mitigation policies, while younger workers in sectors that are forced to shut down have the most to lose. The optimal mitigation policy is sensitive to how much weight each type of agent receives. A planner that puts more weight on older agents would choose extensive and prolonged mitigation measures (shutting down 35 percent of the nonessential sector until June 2020 and fully opening by November 2020), while one that puts more weight on the nonessential sector workers would choose much weaker mitigation measures (shutting down15 percent of the nonessential sector initially and fully opening by June 2020).

Model Limitations

While the SIR model is a powerful tool to measure disease dynamics, its implications depend heavily on the chosen values of the parameters that determine how quickly the disease spreads and how quickly people recover (or die) from it. Modelers choose these values to make their model best match observed, real-world data. Korolev (2020) raises the concern that SIR models cannot be accurately estimated using only the readily available data of confirmed cases and deaths. In particular, estimates of the case-to-fatality ratio, which drives the long-run number of deaths, may be inaccurate, and estimates of the basic reproduction number ( R 0 ) are dependent on characteristics of the virus, such as its incubation period or duration of illness, for which there are no consensus values. Variation in these estimates can cause massive fluctuations in long-run forecasts of deaths and cases while still matching the short-run observed data.

Korolev simulates the model with various parameter values, resulting in possible paths of confirmed cases and deaths that all match the current short-run data but diverge widely in the long run. For example, estimates of the number of currently infected people (including unconfirmed cases) vary from 6 million to 140 million, and estimates of total deaths range from 33,000 to 1.1 million, depending on how these values are set. As a longer sample of data becomes available and testing increases, these estimates can be made more accurate. However, Korolev’s work illustrates the importance of carefully looking at how models choose their parameters and how those parameters can affect the models’ results.

Other Economic Approaches to COVID-19

This Commentary thus far has focused on literature using the SIR model or some variation of it. However, it is far from the only quantitative modeling framework by which economists are examining the effects of COVID-19. For example, Faria-e Castro (2020) studies the effects of the US COVID-19 outbreak and subsequent fiscal stimulus using a dynamic stochastic general equilibrium model––a model often used to study fiscal policy––and finds that the pandemic causes a 40 percent drop in employment in the services sector and a 15 percent contraction in GDP during the first three months of the pandemic, followed by a slow recovery. Guerrieri et al. (2020) develop a theory for how negative supply shocks, such as the COVID-19 pandemic and social distancing policies, can lead to drops in aggregate demand that are even larger than the initial supply shock, and a reduction in the natural interest rate. Finally, Hall, Jones, and Klenow (2020) develop a simple framework to compute the fraction of annual consumption a society would be willing to give up to avoid the risk of death associated with COVID-19. In the most basic setup, the authors find that a society would be willing to give up 26 percent of its total annual consumption in order to avoid the aggregate increase in mortality caused by COVID-19.

Outside of the modeling literature, there are also many empirical studies seeking to determine the real-time effects of the COVID-19 pandemic. The research of Barro, Ursúa, and Weng (2020) and Correia, Luck, and Verner (2020) use data from the 1918 influenza pandemic as a basis for comparison to the COVID-19 pandemic. These studies measure the macroeconomic impacts of the 1918 influenza outbreak, along with the impacts of local government interventions in response to it. They find that the 1918 influenza pandemic significantly decreased economic output at the time and that quickly enacted and long-lasting containment measures improved long-run output and employment. Moving to contemporary effects, Fang, Wang, and Yang (2020) and Greenstone and Nigam (2020) seek to understand the efficacy of social distancing measures using data from the United States and China and conclude that social distancing and mobility restrictions significantly reduce the spread of the virus. Mongey and Weinberg (2020) and Bick and Blandin (2020) both examine the heterogeneous effects of social distancing measures on workers. They find that less educated and less wealthy workers are more likely to hold jobs that do not allow for remote work or that involve high levels of person-to-person contact and thus are most likely to face unemployment because of social-distancing measures. Alon et al. (2020) discuss the potential long-run effects of the pandemic on gender equality, pointing out that the economic downturn caused by the pandemic more negatively impacts sectors with higher female employment compared to economic downturns in “regular” recessions. Finally, Baker et al. (2020) use real-time household financial data to examine how the spread of COVID-19 and implementation of social distancing measures have affected Americans’ consumption patterns, finding patterns consistent with a period of rapid stockpiling following by greatly depressed spending as social distancing measures are enacted.

The spread of the COVID-19 pandemic has resulted in a dual public health and economic crisis. This has led to a quickly emerging body of literature on the economics of pandemics, some parts of which were covered in this Commentary . This literature has demonstrated that it is important for models of the pandemic to incorporate changes in individuals’ economic behavior; failing to do so can result in overestimates of infection rates by ignoring how rates of transmission change as people behave differently in response to the pandemic and their perceived risk. Furthermore, because of the externality that infected and asymptomatic individuals do not fully take into account the effect of their actions on aggregate infection and hospitalization rates, there is a role for government intervention in fighting the pandemic.

As governments choose policies to follow in response to the pandemic, it is imperative that we understand precisely how both the pandemic and potential government interventions will impact us. The SIR-macro literature provides a useful framework within which to predict the effects of policies. The research conducted to date shows that adequate testing and selective containment measures can be effective in fighting the pandemic, and in the absence of adequate testing capabilities, optimal interventions involve social distancing and other lockdown measures. However, the research landscape continues to evolve quickly, and more research still is needed to guide monetary policy, especially taking into account that most central banks in severely affected nations are already at or near the effective lower bounds of their policy interest rates.

• See Ferguson et al. (2020) for a description of the model and this Washington Post article for a discussion of the model’s importance: https://www.washingtonpost.com/outlook/2020/04/14/coronavirus-models-ihme-ic/ . Return
• It is not yet clear whether this assumption is correct for COVID-19. Return
• https://www.infectioncontroltoday.com/public-health/100-years-after-spanish-flu-lessons-learned-and-challenges-future . Return
• In this model, no distinction is made between those who work at home and those who work under other conditions, though another model discussed below does. Return
• As in most economic models, agents derive utility—think units of happiness—from consumption and leisure. Because this is a multiperiod model, agents discount future utility relative to current utility, and optimal policies are those that maximize the discounted sum of these utilities. Return
• The value of statistical life is a measure used by policymakers in cost-benefit analysis. For example, in the United States, these estimates ranged from $8.9 million (Department of Agriculture) to $10 million (FDA) per life in 2016. https://www.bloomberg.com/graphics/2017-value-of-life/ . Return
• For example, a report from the Board of Governors (2020) finds that 39 percent of people working in February 2020 with a household income of less than $40,000 reported a job loss in March of that year. Return
• Alon, Titan M, Matthias Doepke, Jane Olmstead-Rumsey, and Michèle Tertilt. 2020. “The Impact of COVID-19 on Gender Inequality.” National Bureau of Economic Research Working Paper No. 26947. https://doi.org/10.3386/w26947 .
• Alvarez, Fernando, David Argente, and Francesco Lippi. 2020. “A Simple Planning Problem for COVID-19 Lockdown.” University of Chicago, Becker Friedman Institute for Economics, Working Paper (April 6). https://bfi.uchicago.edu/working-paper/a-simple-planning-problem-for-covid-19-lockdown/ .
• Atkeson, Andrew. 2020. “What Will Be the Economic Impact of COVID-19 in the US? Rough Estimates of Disease Scenarios.” National Bureau of Economic Research, Working Paper No. 26867. https://doi.org/10.3386/w26867 .
• Baker, Scott R, R.A Farrokhnia, Steffen Meyer, Michaela Pagel, and Constantine Yannelis. 2020. “How Does Household Spending Respond to an Epidemic? Consumption during the COVID-19 Pandemic.” University of Chicago, Becker Friedman Institute for Economics, Working Paper (March 31). https://bfi.uchicago.edu/working-paper/how-does-household-spending-respond-to-an-epidemic-consumption-during-the-2020-covid-19-pandemic/ .
• Barro, Robert J., José F. Ursúa, and Joanna Weng. 2020. “The Coronavirus and the Great Influenza Pandemic: Lessons from the “Spanish Flu” for the Coronavirus’s Potential Effects on Mortality and Economic Activity.” National Bureau of Economic Research, Working Paper No. 26866. https://doi.org/10.3386/w26866 .
• Berger, David W, Kyle F Herkenhoff, and Simon Mongey. 2020. “An SEIR Infectious Disease Model with Testing and Conditional Quarantine.” National Bureau of Economic Research, Working Paper No. 26901. https://doi.org/10.3386/w26901 .
• Bick, Alexander, and Adam Blandin. 2020. “Real Time Labor Market Estimates During the 2020 Coronavirus Outbreak.” Arizona State University, unpublished manuscript. https://alexbick.weebly.com/uploads/1/0/1/3/101306056/bb_covid.pdf.
• Board of Governors. 2020. “Report on the Economic Well-Being of US Households in 2019, Featuring Supplemental Data from April 2020.” https://www.federalreserve.gov/publications/files/2019-report-economic-well-being-us-households-202005.pdf .
• Correia, Sergio, Stephan Luck, and Emil Verner. 2020. “Fight the Pandemic, Save the Economy: Lessons from the 1918 Flu.” Federal Reserve Bank of New York, Liberty Street Economics (March 27). https://libertystreeteconomics.newyorkfed.org/2020/03/fight-the-pandemic-save-the-economy-lessons-from-the-1918-flu.html .
• Eichenbaum, Martin S., Sergio Rebelo, and Mathias Trabandt. 2020. “The Macroeconomics of Epidemics.” National Bureau of Economic Research, Working Paper No. 26882. https://doi.org/10.3386/w26882 .
• Fang, Hanming, Long Wang, and Yang Yang, 2020. “Human Mobility Restrictions and the Spread of the Novel Coronavirus (2019-nCoV) in China.” National Bureau of Economic Research, Working Paper No. 26906. https://doi.org/10.3386/w26906 .
• Faria-e Castro, Miguel. 2020. “Fiscal Policy during a Pandemic.” Federal Reserve Bank of St. Louis, Working Paper No. 2020-006E. https://doi.org/10.20955/wp.2020.006 .
• Ferguson, Neil, Daniel Laydon, Gemma Nedjati Gilani, Natsuko Imai, Kylie Ainslie, et al. 2020. “Report 9: Impact of Non-pharmaceutical Interventions (NPIs) to Reduce COVID19 Mortality and Healthcare Demand.” Imperial College of London, Technical Report No. 16-03-2020. https://www.imperial.ac.uk/media/imperial-college/medicine/sph/ide/gida-fellowships/Imperial-College-COVID19-NPI-modelling-16-03-2020.pdf .
• Glover, Andrew, Jonathan Heathcote, Dirk Krueger, and José-Vıctor Ríos-Rull. 2020. “Health versus Wealth: On the Distributional Effects of Controlling a Pandemic.” Centre for Economic Policy Research, Discussion Paper No. 14606. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=14606 .
• Greenstone, Michael, and Vishan Nigam. 2020. “Does Social Distancing Matter?” University of Chicago, Becker Friedman Institute for Economics, Working Paper (March 25). https://bfi.uchicago.edu/working-paper/2020-26/ .
• Guerrieri, Veronica, Guido Lorenzoni, Ludwig Straub, and Iván Werning. 2020. “Macroeconomic Implications of COVID-19: Can Negative Supply Shocks Cause Demand Shortages?” National Bureau of Economic Research, Working Paper No. 26918. https://doi.org/10.3386/w26918 .
• Hall, Robert E., Charles I. Jones, and Peter J. Klenow. 2020. “Trading Off Consumption and COVID-19 Deaths.” Stanford University, unpublished manuscript. https://web.stanford.edu/~chadj/Consumption_v_Covid.pdf .
• Jones, Callum J., Thomas Philippon, and Venky Venkateswaran. 2020. “Optimal Mitigation Policies in a Pandemic: Social Distancing and Working from Home.” National Bureau of Economic Research, Working Paper No. 26984. https://doi.org/10.3386/w26984 .
• Kaplan, Greg, Benjamin Moll, and Giovanni L. Violante. 2018. “Monetary Policy According to HANK.” American Economic Review , 108(3): 697–743. https://doi.org/10.1257/aer.20160042 .
• Kaplan, Greg, Benjamin Moll, and Giovanni L. Violante. 2020. “Pandemics According to HANK.” Virtual Presentation, March 31. https://www.youtube.com/watch?v=WYisQeoha7U .
• Kermack, William Ogilvy, and Anderson G. McKendrick. 1927. “A Contribution to the Mathematical Theory of Epidemics.” Proceedings of the Royal Society of London. Series A, Containing Papers of a Mathematical and Physical Character , 115 (772): 700–721.
• Korolev, Ivan. 2020. “Identification and Estimation of the SEIRD Epidemic Model for COVID-19.” Binghamton University. http://dx.doi.org/10.2139/ssrn.3569367 .
• Mongey, Simon, and Alex Weinberg. 2020. “Characteristics of Workers in Low Work-from-Home and High Personal-Proximity Occupations.” University of Chicago, Becker Friedman Institute for Economics, White Paper. https://bfi.uchicago.edu/working-paper/characteristics-of-workers-in-low-work-from-home-and-high-personal-proximity-occupations/ .
• Piguillem, Facundo, and Liyan Shi. 2020. “The Optimal COVID-19 Quarantine and Testing Policies.” Einaudi Institute for Economics and Finance, Working Papers No. 2004. https://EconPapers.repec.org/RePEc:eie:wpaper:2004 .

Suggested Citation

Hur, Sewon, and Michael Jenuwine. 2020. “Lessons on the Economics of Pandemics from Recent Research .” Federal Reserve Bank of Cleveland,  Economic Commentary  2020-11. https://doi.org/10.26509/frbc-ec-202011

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The 2007–09 global financial crisis witnessed colossal disruptions in asset and credit markets, massive erosions of wealth, and unprecedented numbers of bankruptcies. Six years after the crisis began, its lingering effects are still visible in advanced economies and emerging markets alike—this shows a clear need to improve our understanding of financial crises. In their forthcoming book, “Financial Crises: Causes, Consequences, and Policy Responses,” Stijn Claessens, M. Ayhan Kose, Luc Laeven, and Fabían Valencia provide a broad overview of the current research and bring together a number of studies on the causes and consequences of crises. This article provides brief answers to seven commonly asked questions about financial crises in light of the findings in their book.

Stijn Claessens, M. Ayhan Kose, Luc Laeven, and Fabián Valencia

• Question 1. What are the main factors explaining financial crises?

Financial crises can stem from problems of the private or public sectors’ balance sheets and have domestic or external origins. Irrespective of its origins, a financial crisis is often an amalgam of events, including substantial changes in credit volume and asset prices, severe disruptions in financial intermediation, notably a reduction in the supply of external financing, large scale balance sheet problems, and often a need for substantial government and international support.

Although crises can be driven by a variety of factors, they are often preceded by asset and credit booms. Busts, financial crises, and poor growth often follow such booms ( Figure 1 ). Given these types of associations, many theoretical and empirical studies have recognized the need to explain sharp movements in asset and credit markets. These studies have been able to identify some proximate causes, such as financial liberalization, productivity gains, and a variety of distortions, such as weak supervision and regulation, underpriced deposit insurance, and poorly designed safety nets. However, many puzzles remain in terms of what factors drive asset price bubbles and credit booms in the first place.

Coincidence of Financial Booms and Crises

(fraction of total, in percent)

Citation: IMF Research Bulletin 2013, 004; 10.5089/9781484378434.026.A003

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• Question 2. What are the major types of financial crises?

It is useful to classify crises into four groups: currency crises; sudden stops (in capital flows); debt crises; and banking crises. While there are many common causes, the available literature has also identified specific theoretical factors and empirical determinants of each type of crisis. It has sometimes been difficult to transform the predictions of theories into empirical applications, including practical ways to identify crises. While it is easy, for example, to design quantitative methods to identify currency crises and sudden stops, the identification of debt and banking crises remains typically based on qualitative and judgmental methods. The literature therefore employs a wide range of methods to identify and classify crises.

While there are issues with establishing a timeline, it is clear that financial crises are quite common and tend to cluster over time ( Figure 2 ). They also tend to hit small and large countries as well as poor and rich ones. History also shows that crises come in different shapes and sizes, evolve over time—with certain types being more important in some periods than others—and can rapidly spread across borders (as they did in the 2007–09 global financial crisis).

Average Number of Financial Crises over Decades

Irrespective of the classification used, different types of crises can often overlap. Many banking crises, for example, are associated with sudden stop episodes and currency crises. The overlap of multiple types of crises leads to further challenges for the identification of crises and examination of their underlying causes. For example, since banking and sovereign crises often coincide, it is difficult to answer definitively whether a banking crisis leads to a sovereign crisis or vice-versa.

• Question 3. What are the real and financial sector implications of crises?

Macroeconomic and financial implications of crises are typically severe, with many commonalities across various types. Recessions with large output losses are common to many crises. Other macroeconomic variables typically register significant declines as well. Financial variables, such as asset prices and credit, usually follow qualitatively similar patterns across crises, albeit with variations in terms of duration and severity. Besides their negative effects over the short run, financial crises often have adverse medium- to long-run effects on activity.

• Question 4. How severe are the medium- and long-term effects of crises?

The effects of financial crises on the real economy are quite persistent. Output tends to be depressed substantially and persistently following banking crises, with no rebound, on average, to the pre-crisis trend in the medium term. However, growth eventually returns to its pre-crisis rate for most economies. The depressed output path tends to result from long-lasting reductions of roughly equal proportions in the employment rate, the capital-to-labor ratio, and total factor productivity. In the short term, the output loss is mainly accounted for by total factor productivity losses, but, unlike the employment rate and capital-to-labor ratio, the level of total factor productivity recovers somewhat to its pre-crisis trend in the medium term.

• Question 5. What are the main policies to resolve banking crises?

The policies used to remedy the consequences of a banking crisis can be grouped into two sets. The first involves what are often called containment policies, which are deployed during the early stages of a banking crisis. This phase is often characterized by deteriorating sentiment on the viability of the financial system and the economic prospects of the country in the short term. It may involve runs on banks, on entire markets, and even runs on the domestic currency. Typically, at this stage it is difficult to tell whether the crisis reflects just liquidity shortages or solvency problems. In order to buy time to determine the true nature of the crisis, governments resort to policies such as emergency liquidity provision to banks, other financial intermediaries, and even entire markets. They often announce guarantees on bank liabilities and in extreme cases governments use deposit freezes and capital controls.

The second set of policies encompasses the resolution phase. By this stage governments have had time to design a plan to address solvency problems and enact any necessary changes in legislation or secured funding for the restructuring of the financial sector. This phase includes policies such as recapitalization of banks with public funds, closure of insolvent institutions, restructuring of viable ones, setting new institutional arrangements such as asset management companies, as well as restructuring of private debt.

Not all policies mentioned above are used in every crisis, but they are all the most common policies that are used in remedying the effects of a banking crisis. The effect of interventions on economic costs and the fiscal accounts depends, to a large extent, on the policy mix. The use of guarantees on bank liabilities can contain liquidity pressures on banks, for example, without involving a disbursement of public funds upfront, but with potentially substantial fiscal contingencies, although they may not necessarily materialize. In contrast, direct capital injections have a certain impact on the public purse upfront, but some of these resources can be recovered in the future when public shareholdings are returned to private hands. The timing of the policy mix can also affect the fiscal costs of a crisis. If macroeconomic policies are used to avoid a sharp contraction in activity, this may discourage more active bank restructuring that would allow banks to recover more quickly and renew lending, with the risk of prolonging the crisis and depressing growth for a prolonged period of time. This, in turn, can increase indirect fiscal and economic costs.

• Question 6. What is the importance of household debt restructuring as a tool to resolve crises?

The historically high levels of household debt in many recent crisis-hit countries heightened demands for government intervention. If unaddressed, household debt distress can be a drain on the economy and even lead to social unrest. Well-designed and well-executed government interventions may be more efficient than leaving debt restructuring to the marketplace and standard court-based resolution tools. Empirically, there is evidence that housing busts and recessions preceded by larger run-ups in household debt tend to be more severe and protracted. Government policies can help prevent prolonged contractions in economic activity by addressing the problem of excessive household debt. In particular, bold household debt-restructuring programs such as those implemented in the United States in the 1930’s and in Iceland in the aftermath of the global crisis can significantly reduce debt-repayment burdens and the number of household defaults and foreclosures.

• Question 7. Can future crises be avoided?

Banking crises have affected countries for centuries and history has been a great laboratory for academics and policymakers to study early detection of crises, their consequences on the real economy, and the effectiveness of policies used to resolve them. Progress has been made in all these directions, but not sufficiently to claim that they can be avoided at all costs. Nevertheless, important lessons have been learned about vulnerabilities, the role of excessive credit growth—perhaps the single most important predictor of a banking crisis—the role of excessive maturity mismatches, and excessive exposure to exchange rate risk. While not perfect, these lessons will be important in designing regulatory policies and reducing the incidence of crises in the future; one concrete example includes advances in the design of macropru-dential regulation.

However, just as the policy toolkit evolves, the nature of crises evolves as well. Complexity in financial markets and institutions makes the identification of vulnerabilities more challenging. Therefore, efforts on crisis prevention are important, but it is unlikely that they will ever reach a level of effectiveness as to eradicate crises completely.

Claessens , Stijn , M. Ayhan Kose , Luc Laeven , and Fabian Valencia , 2013 , Financial Crises: Causes, Consequences, and Policy Responses , ( Washington : International Monetary Fund ).

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Dell’ Ariccia , Giovanni , Deniz Igan , Luc Laeven , and Hui Tong , 2013 , “ Policies for Macrofinancial Stability: Dealing with Credit Booms and Busts, ” in Financial Crises: Causes, Consequences, and Policy Responses , edited by Stijn Claessens , M. Ayhan Kose , Luc Laeven , and Fabían Valencia . ( Washington : International Monetary Fund ).

Forbes , K. J ., and F . Warnock , 2012 , “ Capital Flow Waves: Surges, Stops, Flight, and Retrenchment, ” Journal of International Economics , Vol. 88 , No. 2 , pp. 235 – 51 .

Laeven , Luc , and Fabian Valencia , 2013 , “ Resolution of Banking Crises: The Good, the Bad, and the Ugly ” in Financial Crises: Causes, Consequences, and Policy Responses d , edited by Stijn Claessens , M. Ayhan Kose , Luc Laeven , and Fabían Valencia ( Washington : International Monetary Fund ).

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Publications on Economic crisis

Effects of forced formalization (demonetization) in the indian economy , when two minskyan processes meet a large shock, the economic implications of the pandemic, the economic response to the coronavirus pandemic, gender, socioeconomic status, and time use of married and cohabiting parents during the great recession.

Using data from the 2003–14 American Time Use Survey (ATUS), this paper examines the relationship between the state unemployment rate and the time that opposite-sex couples with children spend on childcare activities, and how this varies by the socioeconomic status (SES), race, and ethnicity of the mothers and fathers. The time that mothers and fathers spend providing primary and secondary child caregiving, solo time with children, and any time spent as a family are considered. To explore the impact of macroeconomic conditions on the amount of time parents spend with children, the time-use data are combined with the state unemployment rate data from the US Bureau of Labor Statistics. The analysis finds that the time parents spend on child-caregiving activities or with their children varies with the unemployment rate in low-SES households, African-American households, and Hispanic households. Given that job losses were disproportionately high for workers with no college degree, African-Americans, and Hispanics during the Great Recession, the results suggest that the burden of household adjustment during the crisis fell disproportionately on the households most affected by the recession.

Brazil Still in Troubled Waters

Since inheriting the Brazilian presidency five months ago, the new Temer administration has successfully ratified a constitutional amendment imposing a radical, two-decades-long public spending freeze, purportedly aimed at sparking an increase in business confidence and investment. In this policy brief, Fernando Cardim de Carvalho explains why this fiscal strategy is based not only on a flawed conception of the drivers of private-sector confidence and investment but also on a mistaken view of the roots of the current Brazilian economic crisis. The hoped-for “expansionary fiscal consolidation” is not likely to be achieved.

Time Use of Parents in the United States

What difference did the great recession make.

Feminist and institutionalist literature has challenged the “Mancession” narrative of the 2007–09 recession and produced nuanced and gender-aware analyses of the labor market and well-being outcomes of the recession. Using American Time Use Survey (ATUS) data for 2003–12, this paper examines the recession’s impact on gendered patterns of time use over the course of the 2003–12 business cycle. We find that the gender disparity in paid and unpaid work hours followed a U-shaped pattern, narrowing during the recession and widening slightly during the jobless recovery. The change in unpaid work disparity was smaller than that in paid work, and was short-lived. Consequently, mothers’ total workload increased under the hardships of the Great Recession and declined only slightly during the recovery.

The Economic Crisis of 2008 and the Added Worker Effect in Transition Countries

Time use of mothers and fathers in hard times and better times, the us business cycle of 2003–10.

The US economic crisis and recession of 2007–09 accelerated the convergence of women’s and men’s employment rates as men experienced disproportionate job losses and women’s entry into the labor force gathered pace. Using the American Time Use Survey (ATUS) data for 2003–10, this study examines whether the narrowing gap in paid work over this period was mirrored in unpaid work, personal care, and leisure time. We find that the gender gap in unpaid work followed a U-pattern, narrowing during the recession but widening afterward. Through segregation analysis, we trace this U-pattern to the slow erosion of gender segregation in housework and, through a standard decomposition analysis of time use by employment status, show that this pattern was mainly driven by movement toward gender-equitable unpaid hours of women and men with the same employment status. In addition, gender inequality in leisure time increased over the business cycle.

Estimating the Impact of the Recent Economic Crisis on Work Time in Turkey

This paper provides estimates of the impact of the recent economic crisis on paid and unpaid work time in Turkey. The data used in this study come from the first and only time-use survey available at the national level. Infrequency of collection of time-use data in Turkey does not allow us to make a direct comparison of pre- versus postcrisis time-use patterns. We introduce a tractable way for estimating these possible effects by measuring the impact of an increase in unemployment risk on time-use patterns of women and men living in couple households. The method developed here can be applied to other developing-country cases where there is a lack of longitudinal data availability. Our findings support the argument that economic crises reinforce the preexisting gender inequalities in work time.

The Current Economic and Financial Crisis

A gender perspective.

Widespread economic recessions and protracted financial crises have been documented as setting back gender equality and other development goals in the past. In the midst of the current global crisis—often referred to as “the Great Recession”—there is grave concern that progress made in poverty reduction and women’s equality will be reversed. Indeed, for many developing countries it is particularly worrisome that, through no fault of their own, the global economic downturn has exacerbated effects from other crises manifest in food insecurity, poverty, and increasing inequality. This paper explores both well-known and less discussed paths of transmission through which crises affect women’s world of work and overall wellbeing. As demand for textile and agricultural exports decline, along with tourism, job losses are expected to rise in these female-intensive industries. In addition, the gendered nature of the world of work suggests that women will see an increase in their share among informal and vulnerable workers worldwide, and will also supply more of their labor under unpaid conditions. The latter is particularly important in the context of developing countries, where many production activities take place outside the strict boundaries of the market. The paper also makes this point: examined through the prism of gender equality, the ability of the state to implement countercyclical policies matters greatly. If policy responses at the national and international levels end up aggravating inequities, gender equality processes face many more barriers, especially among the poor.

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• A Decade After the Financial Crisis, Economic Confidence Rebounds in Many Countries

But pessimism about the future lingers, as does a sense that economic conditions were better pre-crisis

Table of contents.

• 1. The current economic mood
• 2. Expectations for the future
• 3. Is the present better than the past?
• Acknowledgments
• Methodology
• Appendix A: Economic categorization
• Appendix B: Political categorization

“September and October of 2008 was the worst financial crisis in global history, including the Great Depression,” former chairman of the U.S. Federal Reserve Ben Bernanke has observed . The bottom fell out of the economies in many nations, ushering in widespread malaise. A decade later, economies have gradually recovered and the public mood has rebounded, especially in some of the hardest-hit advanced economies, according to a spring 2018 Pew Research Center survey of 27 countries around the globe.

The change in the public’s economic mood has been dramatic in some nations. In 2018, nearly eight-in-ten Germans (78%) say economic conditions in their country are good, up 50 percentage points from 2009. Nearly two-thirds of Americans (65%) are similarly upbeat about their economy, with their assessment up 48 points. And the economic mood has improved 40 points in Poland, 35 points in the United Kingdom, 34 points in Japan and 24 points in Kenya since the depth of the Great Recession.

More positive public feelings about the current economy have not erased concern about the future, however. In 18 of the 27 nations surveyed, including 80% of the French, 76% of the Japanese and 72% of the Spanish, half or more of the public believes that when children today in their country grow up they will be worse off financially than their parents. In previous Pew Research Center surveys, such worries were largely confined to advanced economies, but now people in emerging markets increasingly express concerns about the financial well-being of the next generation.

Economic nostalgia is also widespread. In roughly half the countries surveyed, a plurality to majority of the public says the financial situation of average people today is worse, compared with the pre-crisis era 20 years ago. This includes 87% of Greeks, 75% of Tunisians and 72% of Italians.

These are among the major findings from a Pew Research Center survey conducted among 30,133 respondents in 27 countries from May 14 to Aug. 12, 2018. The nations included in the survey account for roughly two-thirds of the global gross domestic product.

A dramatic recovery

The current uptick in positive economic sentiment has been striking in Europe, Japan and the United States. In the wake of the financial crisis a decade ago, the U.S. economy shrunk by 2.8%, the EU economy by 4.2% and the Japanese economy by 5.4%. Not surprisingly, public assessment of these economies also dropped. But as economic growth has rebounded, so too has public sentiment. Today, American, European and Japanese adults have a more positive view of their own country’s economic situation than they have had at any time since 2002.

Roughly two-thirds of Americans (65%) say the U.S. economy is in good shape. The U.S. public’s assessment of the American economy is up from 17% in 2009. Across five European nations polled regularly since 2002, a median of 46% believe their own national economies are doing well, compared with 15% as recently as 2013. At the same time, more than four-in-ten Japanese (44%) voice the opinion that their nation’s economic situation is good, up from 7% in 2012. (Japanese sentiment was just as low in 2002 (6%), reflecting the fact that Japan’s economy had been struggling for years, even before the global financial crisis.)

In most of the nations surveyed, economic confidence plateaued over the past year, with public optimism similarly pronounced in 2017 and 2018. Some exceptions between 2017 and 2018 include significant upward swings in economic confidence in France (up 22 points) and South Korea (up 16 points), as well as a steep downward turn in India (down 27 points). In the latter case, despite this decline, more than half of the public still voices a positive assessment of their economy.

Doubts about the next generation’s financial well-being

Despite the dramatic improvement in the public’s view of national economic conditions, in many societies people are not that hopeful about what lies ahead for the next generation.

In advanced economies surveyed, a median of just 34% believe that when children today in their country grow up they will be better off financially than their parents. Among the emerging markets polled, slightly more (42%) anticipate a brighter economic future for today’s children, but, still far from a majority hold this view.

Pessimism about the future is especially striking in some countries where current conditions are rated positively, as doubts remain about the next generation’s financial well-being.

Among advanced economies surveyed, only in Poland does a majority rate both the current economy (69%) and the economic future of today’s children (59%) positively. But even there, optimism declines from present to future.

In 13 advanced economies, publics are more likely to say that their country’s current economic situation is good than to voice the view that today’s children will be better off financially than their parents. This experience-expectation differential is greatest in the Netherlands, Sweden and Germany where roughly eight-in-ten adults or more say their economy is doing well, but less than four-in-ten believe the next generation’s prosperity will exceed that of their parents.

Among the emerging markets surveyed, only in the Philippines, Indonesia and India do majorities speak positively about both their current economy and anticipate that today’s children will be better off than their parents. In a number of emerging markets, people are more optimistic about the future compared with current economic conditions, but overall levels of confidence about their children’s financial well-being are not especially high.

Since 2013, the share of the public expecting children’s future financial situation to be worse than that of their parents has risen fairly sharply in some emerging economies, up 35 points in Brazil, 28 points in Kenya and 25 points in Tunisia since 2013.

Trend data comparing current economic perspectives with long-term expectations exist for the United States and paint a fairly gloomy picture. The share of U.S. children who grow up to have higher inflation-adjusted incomes than their parents has declined steadily from around 90% for children born in 1940 to 50% for those born in 1984, according to a recent Brookings Institution study . Mirroring these income trends, most Americans expect worse times for the coming generation. For example, today, 65% of adults say the current economic situation is good. But only 33% believe that today’s children in the U.S. will be better off financially than their parents. Such pessimism is largely unchanged since 2013.

These views have not improved in light of the U.S. economy’s strong economic performance of late. And the gap between satisfaction with the current economy and hope for the finances of the next generation has widened.

The prevalence of economic nostalgia

Along with failure to erase doubts about the future, economic confidence today is dogged by the popular belief that times were better before the Great Recession. Substantial shares in 15 of the 27 nations polled believe that, compared with 20 years ago, the financial situation of average people in their country is worse today. This view is especially pronounced in Greece (87%), Tunisia (75%), Italy (72%), Spain (62%), France (56%) and the UK (53%).

But public perceptions of a more prosperous past often do not mirror real economic change. In Brazil, where a plurality of 43% say personal financial conditions are worse today than 20 years ago, adjusted per capita gross domestic product (GDP) calculated on a purchasing power parity (PPP) basis is actually up 26% since 1998. In Mexico, while 40% say times are worse for average people, per capita GDP is 16% higher. The same is the case in Spain and France, where a majority of the public believes personal finances have deteriorated, but per capita real GDP has improved 25% and 11% respectively.

How one feels about the past may also reflect how one feels about the present. In 26 of the 27 nations surveyed, those who say current economic conditions are bad are also likely to believe that the financial situation of the average person in their country is worse today than it was 20 years ago.

Seeing the economy through a populist lens

In a number of European countries, people sympathetic to populist parties are often more negative about current economic conditions.

In Sweden, for instance, those who have a favorable view of the Sweden Democrats are less likely to have a positive view of economic conditions than are those who have an unfavorable view of the anti-immigrant party. In France, about a quarter of supporters of the National Front think the French economy is good, while just under half of other French adults are positive about the economy. There is also a difference between how backers of the AfD in Germany and other Germans see their economy. And in Spain, supporters of the left-wing populist party Podemos assess economic conditions less favorably than the rest of the Spanish public.

CORRECTION (December 2018): The data in this report and the accompanying topline have been corrected to reflect a revised weight for Australia in 2018. The changes due to this adjustment are very minor and do not materially change the analysis of the report.

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Entrepreneurship in Times of Crisis: A Comprehensive Review with Future Directions

Despite an increased interest in crises within the field of entrepreneurship, there is still a lack of understanding about the interplay between different types of crises and entrepreneurship. In addition, the specific circumstances surrounding each type of crisis may also cause the conclusions of these studies to diverge or converge. To enhance our theoretical understanding of entrepreneurship during times of crisis, our review seeks to answer the following research questions: (1) How are the different types of crises addressed in entrepreneurship literature, and what similarities and differences exist? (2) How can we broaden our understanding and deepen our insights into the relationship between a crisis and entrepreneurship? In an effort to review the largest possible variety of crises that extends beyond political crises, natural disasters, and financial crises, we have also included a number of recent studies that examined COVID-19 from an entrepreneurial perspective. Following this, our study identifies six types of crises along with corresponding research themes, key findings, and critical shortcomings. This review also identifies multiple research gaps and suggests several future research directions, as well as theoretical approaches that researchers can take to build upon existing discussions surrounding entrepreneurship in times of crisis.

1 Introduction

Economically and socially disruptive crises, such as natural catastrophes, terrorist attacks, and financial collapse, have persisted throughout history. Such frightful occurrences impact the lives of many individuals, organizations, and the communities to which they belong, frequently culminating in large-scale global effects. The current COVID-19 situation exemplifies this type of crisis. The ongoing threat of invisible crises arising from both human and natural causes (i.e. global warming) has become a new normal for society ( Bendell et al. 2020 ). Such crises also have an effect on businesses, since typically, young and small businesses are more susceptible than large businesses to the challenges posed by shocks (i.e. Bărbulescu et al. 2021 ; Bartz and Winkler 2016 ). However, times of crisis can also provide a unique environment necessary for the emergence of entrepreneurial and prosperous organizations ( Cucculelli and Peruzzi 2018 ; Guo et al. 2020 ). For example, since the outbreak of COVID in 2019, the number of daily users of Zoom, a video teleconferencing software, has soared 30-fold, elevating the firm to its current position as a globally renowned, billion-dollar IT corporation ( Caminiti 2021 ). Beyond its monetary value, the realization of this particular entrepreneurial opportunity has had a significant impact on our society by altering how office meetings are held and how students learn through virtual classrooms across diverse nations.

Given this co-presence of both challenges and opportunities, scholars in the field of entrepreneurship have held a substantial interest in crises (i.e. Doern et al. 2018 ; Grube and Storr 2018 ; Williams and Vorley 2015 ). When an ambivalent and complex relationship exists, such as the relationship between a crisis and entrepreneurship, a review study can play a significant role in comparing and contrasting the findings of previous research ( Snyder 2019 ; Torraco 2005 ), thereby helping to resolve inherent theoretical tensions. Furthermore, a review is especially desired when the focal discipline strongly relates to social issues. According to Fischer et al. (2021) , a review is required to establish a robust theoretical base to generate trustworthy recommendations for solving real-world problems. In our case, the ultimate goal is to enlighten entrepreneurs and stakeholders (i.e. investors and governments) about the potential consequences that could result from how they choose to respond to unprecedented crises. This goal can be best served by integrating and comparing scattered findings about various crises that exist across entrepreneurial contexts. In order to robustly enhance our theoretical understanding in this area, our review seeks to answer two major research questions: (1) How are the different types of crises addressed in entrepreneurship literature, and what similarities and differences exist? (2) How can we broaden our understanding and deepen our insights into the relationship between a crisis and entrepreneurship? In this paper we attempt to answer these questions, ones that prior literature reviews have not yet been able to thoroughly address ( Doern et al. 2018 ; Grube and Storr 2018 ).

In an effort to review the largest possible variety of crises that extends beyond political crises (e.g. war), natural disasters (e.g. volcanic eruptions), and financial crises, we have also included a number of recent studies that examined COVID-19 from an entrepreneurial perspective. This inclusion is timely given that the global COVID-19 crisis, which began in 2019, has almost reached its conclusion. Since 2019, research on COVID-19 has proliferated across all academic disciplines ( Donthu and Gustafsson 2020 ; Holmes et al. 2020 ), including entrepreneurship. The influx of unique data pertaining to this crisis has allowed for numerous analyses to spring forth, especially those relating to the impact of the pandemic on entrepreneurship and subsequent entrepreneurial responses. However, if these findings are not consolidated in a timely manner, they may remain fragmented as purely ‘COVID-19 related’ studies, leaving them susceptible to becoming an episodic or obsolete topic of discussion within a few years, otherwise known as an ‘academic fad’ ( Wefald and Downey 2009 ). However, our review attempts to categorize COVID-19 alongside other crises as a sub-type of naturally-driven crises and places it within the broader framework of ‘ crisis and entrepreneurship ’. We strive to do this as the discussion surrounding COVID-19 continues to be a relevant key resource for future scholars interested in the crisis context.

The academic society’s desire for novel contributions from individual research is becoming stronger than ever ( Corley and Gioia 2011 ; Neubaum and Micelotta 2021 ). However, it is one of the most challenging goals for most scholars. A creative gaze does not arise suddenly, but rather, it is based on tedious efforts to learn about many existing works ( Sawyer 2011 ). A comprehensive review article that expands upon the different types of crises and their corresponding research themes will aid in understanding the vast discussions that exist in the field. In this regard, the identification of key research gaps is one of the primary benefits of review articles ( Paul and Criado 2020 ). To best serve this goal, we have organized our review according to underlying research themes rather than merely categorizing variables into antecedents and outcomes. Our review identifies multiple research gaps where we particularly encourage researchers to generate new contributions to the field by incorporating different components from the highlighted research themes among the different types of crises outlined in our paper. For example, in the literature on economic crises, a group of research showed that small businesses learn from crises and subsequently respond better than those without such experience (e.g. Brzozowski et al. 2019 ). By applying this theme to COVID-19, future research could investigate the resilience of entrepreneurial companies that have previously experienced multiple waves of the COVID-19 pandemic.

Another essential benefit of a review is to draw researchers’ attention from existing theoretical approaches to fresh insights or perspectives for future research ( Paul and Criado 2020 ). To maximize this advantage, our discussion in the later part of this paper provides insights in three ways. First, the research themes are derived through an extensive review that includes the recent COVID-19 crisis, with research gaps and future directions presented for each theme. Second, we present overall, new research directions that either examine each theme more deeply or combine themes. Third, while the previous two insights are based on current literature, the third insight moves attention away from these traditional paths towards newer approaches. We propose two new avenues for researchers to consider: the third-party perspective approach and the quality-concerning approach, both of which emphasize the roles and perspectives of governments, regions, and investors surrounding entrepreneurial firms in crisis. Thus, these approaches can generate useful implications from a practical point of view, particularly to the parties that need to protect the entrepreneurship ecosystem into the future.

2 Crisis and a Contextualized Perspective on Entrepreneurship

With the advent of the COVID-19 pandemic, it comes as no surprise that an understanding of the concept of a crisis has become critical to both scholars and practitioners. Although there are different definitions of a ‘crisis’, most studies define it as a disruptive event that occurs unpredictably and in a way that can significantly threaten the actor’s (i.e. an individual, organization, and/or community) normal functioning ( Doern et al. 2018 ; Williams et al. 2017 ). While the vast majority of scholars define a crisis as a disruptive event, some scholars view a crisis as more of a ‘process’ that evolves gradually before, during, and after a triggering event ( Bundy et al. 2017 ; Newman et al. 2022 ). Others have extended the concept of a crisis further by defining it as more of an expected challenge that entrepreneurs may face in their daily lives as their businesses evolve along with their life cycles ( Doern et al. 2018 ).

In terms of the different typologies for a crisis that have been put forth, the scope of the impact (i.e. from individual to global) and the cause of a crisis (i.e. human, natural, and technological) are critical features for classifying crises ( Bendell et al. 2020 ; Doern et al. 2018 ). The crises discussed in entrepreneurship literature can be categorized as different types of crises based on these two taxonomies (i.e. the scope of the impact and the primary causes of the crisis). Each crisis is fundamentally heterogeneous and some may also have common characteristics ( Rauch and Hulsink 2021 ). Although some papers provided a comprehensive review of the studies on entrepreneurship in the context of a crisis, our current knowledge on entrepreneurship in times of crisis is still limited as studies remain mostly fragmented based on a single type of crisis and there is also a lack of understanding concerning how crises can be similar or different. For example, Doern and colleagues (2018) provided an overview of the different definitions and typologies of a crisis in entrepreneurship and suggested that an entrepreneur’s experience, the business growth phase, and the type or phase of the crisis, all influence the entrepreneur’s crisis reaction. Korber and McNaugthon (2017) reviewed studies at the intersection of entrepreneurship and resilience and found that studies largely focused on ex-ante features of entrepreneurial individuals and firms amid a crisis, while few works studied post-disruption resilience dynamics. More recently, particular efforts have been made by scholars to systematically understand studies on entrepreneurship in the COVID-19 context (e.g. Belitski et al. 2022 ; Khlystova et al. 2022 ). Although these reviews are fruitful, the diversity and heterogeneity of a crisis remain largely undiscussed, even in light of the emerging contextualized perspective in entrepreneurship literature.

Studies in the field of entrepreneurship have moved towards approaches that are more focused on contextualization ( Welter et al. 2019 ). Researchers interested in entrepreneurship in times of crisis are also a part of this movement, resulting in a wide spectrum of focus on entrepreneurship in various types of crises. While COVID-19 and the 2007–2008 global financial crisis take on the majority of scholarly interest, there are also other types of crises that contribute to a more contextualized understanding of entrepreneurship in times of crisis. For example, studies focusing on the long-term dynamics and the trajectory of individuals within the broader business community following a natural disaster ( Dinger et al. 2019 ), the effects on emotional intelligence after suffering local shocks from an economic recession within a developing economy ( Quintillán and Peña-Legazkue 2019 ), and the entrepreneurial activities in communities under continuous threat of the Calbuco volcano eruptions in 2015 and 2016 in Chile ( Muñoz et al. 2019 ). From a contextualized perspective, there is merit in reviewing prior literature on entrepreneurship within a wide range of crises and in distinguishing the different types of crises, as such an approach invites us to have a more layered understanding of entrepreneurship in times of crisis where we might otherwise expect sameness across different types of crises ( Welter et al. 2019 ).

3 Methodology

A systematic review is defined as “a review of an existing body of literature that follows a transparent and reproducible methodology in searching, assessing its quality, and synthesizing it, with a high level of objectivity” ( Kraus et al. 2020 , 1026). To systematically review the literature of entrepreneurship in crisis and post-crisis contexts, this paper follows the methodologies suggested by Kraus et al. (2020) and Petticrew and Roberts (2006) . The review process comprises of four major stages: (1) review planning, (2) study identification and evaluation, (3) data extraction and integration, and (4) finding dissemination ( Kraus et al. 2020 ). In the planning stage, we reviewed a broad range of literature related to entrepreneurship and crises to clarify our research questions, as well as to develop a study protocol. To ensure a transparent and reproducible procedure, a review protocol was developed for implementation. Figure 1 shows the systematic review protocol.

Research protocol of a systematic review.

We limited our review to only include peer-reviewed journal articles across disciplines as they are considered to be both valid and reliable sources of knowledge ( Podsakoff et al. 2005 ). Thus, unpublished papers, book chapters, and conference papers were excluded from the review. To implement the search procedure, we used the Web of Science as it is one of the most comprehensive databases, covering an extensive range of quality journals across different academic disciplines. Within the Social Science Core Collection database of the Web of Science, we applied the Boolean search string “entrepreneurship AND (crisis OR covid OR shock OR disaster)” for studies written in English. The main search included studies published up until February 1, 2021, and this search was updated once in November 2022, to further include newly published articles between February 1, 2021, and October 31, 2022. With regards to the updated search, we limited the search to publications within the Web of Science meso-topics of Management or Economics, the categories of Business, Management, or Economics, and the Social Science Citation Index (SSCI), in order to collect an initial data set of influential articles that would be most relevant to our research topic. After excluding any duplicates, the initial search yielded 918 studies in the primary search and 232 studies in the updated search, resulting in a data set of 1150 studies in total. Three additional steps were conducted to create the final data set. First, we read the titles and abstracts of selected articles and excluded studies that heavily focused on refugees, healthcare, and tourism or simply dealt with small and medium-sized enterprises (SMEs) with no relevance to entrepreneurship literature. We further validated the relevance of the articles by taking into account the research topic, which led to the selection of 206 studies. Second, we carefully read the full text of the articles to determine whether a study was suitable for the research objective and selected 97 articles. Finally, nine studies were further selected from a forward and a backward citation search, resulting in a final data set of 106 studies.

4 Results and Findings

Figure 2 illustrates the 106 research articles by year (the grey area indicates that only articles published up until October 31, 2022, are included in our review). An increasing interest in topics surrounding entrepreneurship and crises has taken place since 2015, with a slight decrease occurring after 2017. Following this, an upward, blossoming trend can be clearly seen following the outbreak of the COVID-19 pandemic, with 75 percent of papers (80) having been published since 2019.

Trends in publications by year.

Figure 3 shows the different types of crises described within the reviewed articles. Research was conducted utilizing very different contexts, including the 2007–2008 global financial crisis, the 1997 Asian financial crisis, local economic collapse (e.g. the 2012 economic breakdown in Greece), the current COVID-19 pandemic, environmental disasters (e.g. earthquakes, hurricanes), and political conflicts (e.g. war). The analysis revealed that the majority of studies covering both crises and entrepreneurship focused on external, major, and extreme events. These studies placed a strong emphasis on the influence that a crisis may have on the entrepreneurial behaviors and outcomes of people, organizations, and regions, as well as the characteristics that assist such actors in overcoming the crisis at hand. Most publications (60 percent) utilized quantitative methods, 20 percent of the articles utilized qualitative methods, and the remaining studies (20 percent) were literature reviews or conceptual papers. Table 1 shows that there are two main contexts upon which the reviewed articles are concentrated: COVID-19 (41 percent) and the global financial crisis of 2007–2008 (34 percent). While a quantitative approach was mostly used to study entrepreneurship in the context of the 2007–2008 global financial crisis, a variety of research methods were utilized in the studies that focused on COVID-19. With regards to empirical studies, most scholars drew primarily on individual (38%), organizational (25%), and mixed (15%) units of analysis, while other studies focused on country (11%), sub-national region (9%), and household (2%) units of analysis. A list of all 106 papers can be found in Table 2 .

Type of crisis reviewed. Articles (5) that handled a variety of crises were excluded in the figure above.

Articles by crisis with corresponding methodologies.

Full list of papers by crisis.

4.1 The 2007–2008 Global Financial Crisis

The global financial crisis, which began in late 2007, brought an end to an era of continuous economic progress and plunged many countries into the worst post-war economic calamity ever experienced. The 2007–2008 global financial crisis received considerable attention in crisis-related entrepreneurship research, with thirty-six (36) studies out of 106 focusing on it. Following a thorough review of these publications, it was determined that, despite differences in background countries or methodology, academics continue to engage in in-depth and ongoing discussions about some commonly appealing research themes. These themes mostly cover theoretical tensions and the question of whether or not there is a mutually intertwined influence among individuals, businesses, regions, and countries. The 2007–2008 financial crisis can also be viewed as an external occurrence with an impact at the ecosystem level that is beyond the control of individuals or businesses. As a result, paying attention to the effect of these macro-environmental components on entrepreneurial activities stems from an interactive viewpoint, as opposed to an obsolete perspective that views entrepreneurship as something that is simply driven by entrepreneurs. Although the research questions presented here do not cover the entirety of the research on entrepreneurship in the aftermath of the financial crisis, they have sparked the interest of numerous scholars. The research questions are listed in the order of greatest proportion, with some studies having addressed two or more research themes at the same time ( Arrighetti et al. 2016 ).

4.1.1 Did the Global Financial Crisis Stimulate or Reduce Entrepreneurial Activity?

There is little doubt that the global financial crisis had a negative influence on traditional, established enterprises. However, entrepreneurship literature contains contradictory theoretical tensions about the influence of the economic crisis on entrepreneurial enterprises. According to the pro-cyclical viewpoint, if the economic crisis affects demand for products and services, so too will it affect any possibilities for entrepreneurship. Counter-cyclical schools of thought, on the other hand, predict that the economic crisis will encourage more people to create their own businesses as employment opportunities within conventional organizations decline.

Scholars have been looking for empirical data to support these opposing viewpoints. First, Abdesselam et al. (2017) , as well as Vegetti and Adăscăliţei (2017) , stated that entrepreneurial activities will certainly decrease in response to the business cycle. While observing OECD countries’ entrepreneurial activities from 1999 to 2012, these analyses were divided into pre-crisis and post-crisis relative to 2008. Entrepreneurship, which developed alongside the settlement boom from 1999 to 2008, saw a dramatic decrease during the recovery period of 2010–2012, when the unemployment rate was higher than ever, however, the rate of self-employment did not rise. The authors termed this, ‘the break of entrepreneurship dynamics’, meaning that those who were unemployed did not jump into entrepreneurial activities. However, the loss of an entrepreneurial dynamic was relatively minor in countries that had focused on more traditional industries, such as agriculture, and that had little connection to the financial industry. González-Pernía et al. (2018) tried to showcase why economic crises reduce entrepreneurship and revealed that economic decline leads to lower perceptions of opportunity, which subsequently leads to lower entrepreneurial activity. Bakhtiari (2019) , who analyzed corporate-level data from 2002 to 2015 in Australia, also found that entrepreneurship had become less dynamic and riskier during the crisis. In particular, he said that immediately after the crisis, small enterprises experienced business failure and showed a significant increase in ‘exits’ from the market.

On the other hand, several scholars have argued that the economic crisis played a role in fostering the creation of new firms. Hundt and Sternberg (2014) , for example, observed entrepreneurial activities in Germany for 13 years before and after the financial crisis of 2007–2008. Their hypothesis, which stated that the financial crisis can in fact stimulate entrepreneurship, was supported. Contrary to their expectations, the financial crisis did not have a differential impact on necessity versus opportunity-based entrepreneurship. Also, they noted that the supported facilitation effect could vary depending on the local human capital context.

Mühlböck et al. (2017) explained this seemingly counterintuitive argument with the term, ‘desperate entrepreneurship’. A significant proportion of entrepreneurs start their business despite the negative perceptions of opportunity, which are even more likely to increase during times of crisis. Geographically, this trend is higher in countries that are more largely impacted by economic crises and have higher unemployment rates. Following this, desperate entrepreneurs can be said to have no other choice but to start a business, resulting in the crisis essentially fostering entrepreneurship.

4.1.2 Can Entrepreneurial Firms Survive Better in a Financial Crisis?

Scholars have been interested in how well existing entrepreneurial companies can survive during a severe crisis due to contradictory theoretical forecasts. In general, the smaller the company, the less likely it is to survive. This is due to the lack of human and financial resources at the firm’s disposal. According to Cucculelli and Peruzzi (2018) , large organizations can survive the crisis through cost reduction or branch reduction at the managerial level, however small businesses face a limitation in downsizing, with products and services having not yet been diversified, making the firm more vulnerable to crises.

According to the Schumpeterian view, which poses a differing perspective, the flexibility of small organizations can boost the viability of independent enterprises during an economic downturn. The hypothesis that the global economic crisis would have a negative impact was rejected by Davidsson and Gordon (2016) who stated that “for most nascent entrepreneurs and their ongoing start-up efforts, the (behavioral) effects of macroeconomic crises are far smaller than what is likely to be commonly believed” ( Davidsson and Gordon 2016 , 930). Simón-Moya et al. (2016) discovered, surprisingly, that entrepreneurial companies are more likely to survive the financial crisis since the crisis reduces the firm’s ‘opportunity costs’, leaving founders with no other choice but to persevere.

Bartz and Winkler (2016) provide a more sophisticated answer by distinguishing between the size and age of the entrepreneurial actor. That is, ‘small’ firms maintain higher growth rates than large firms in both times of stabilization and crisis given that flexibility becomes an advantage, however ‘young’ companies are overly market-dependent and their founder-owned characteristics are negatively affected by the crisis in a significant way.

Cefis and Marsili (2019) also investigated which company traits are more resistant to a crisis, departing from the one-size-fits-all theory that all small firms are more likely to survive in a crisis. Companies were more adaptable both during and after the crisis if innovation was incorporated within the first 2 years of the company’s inception. At this period, innovation was most effective when it focused on the technological aspect. Devece et al. (2016) made a similar point, finding that need-based entrepreneurs were ineffective in times of crisis, whereas those with a foundation of opportunity or innovation were more effective.

4.1.3 Does the Impact of a Crisis on Entrepreneurship Vary by Geography?

Recent research on entrepreneurship has increasingly shifted its emphasis to the effect of a mutual give and take exchange taking place between enterprises and the regions in which they are embedded. After summarizing the academic discussions on the subject, it is clear that corporations and their corresponding regions are developing constructive two-way relationships with one another. It was discovered that regional and national features can provide a ‘safety net’ for entrepreneurship ( Ruiz-Fuensanta and Bellandi 2019 ; Van Stel et al. 2014 ). For example, Jabłońska and Stawska (2020) discovered that in Poland and the Czech Republic, entrepreneurial activity was primarily stimulated by the level of spending on regional municipalities, social welfare, and R&D, as well as the proportion of the economically active population who were unemployed. As a result, the study advised entrepreneurs to pay attention to the unique conditions of where they belong. Goschin (2020) delved a bit deeper into the post-crisis impact, discovering that, among a variety of criteria, foreign direct investments, population expansion, and the agglomeration of active firms are key components in assisting new firm survival within the first 3 years.

Bishop and Shilcof (2017) and Pisá-Bó et al. (2021) focused on whether the region of interest (i.e. urban or rural) plays an important role in the crisis-entrepreneurship relationship and found that the more urban the area, such as London, the lesser the consequences suffered as a result of the economic crisis. In urban areas, the entrepreneurship dynamic was maintained even during the crisis, and in rural areas, more necessity-based start-ups were developed due to limited employment possibilities. Furthermore, Pinho and de Lurdes Martins (2020) , who investigated 44 countries during the economic crisis, argued that institutional elements inherent in a society, rather than geographical characteristics such as countries or regions, determine the genuine impact of an economic crisis. Countries that were struck more strongly by the crisis were distinguished from those that did not. The authors concluded that while the economic shock suffered by a country following a financial crisis does vary, institutional qualities (e.g. a start-up’s social image, education level, information governance) also have a key impact on new venture creation during such times.

It should be noted that some studies focused on the upward influence of entrepreneurial activity on a country or region, as opposed to a downward influence. According to Abdesselam et al. (2017) , small innovators, rather than large enterprises, fuel national growth during a recovery era. Armeanu et al. (2015) examined the Romanian economy before and after the financial crisis and discovered that entrepreneurship was the primary driver of the nations’ economic recovery. Bishop (2019) discovered that entrepreneurial competency assists communities in adapting to crises, where the size and diversity of local knowledge-based enterprises plays a mediating role. In other words, it was suggested that while nurturing start-ups, it is possible to strengthen the local economy’s sustainability in times of crisis by growing a mix of varied businesses, rather than cultivating clusters that are centered in a certain field.

4.1.4 How do Individual Entrepreneurs Deal With Crises?

Despite the previous emphasis on the influence of the macro-environment, local community, and region, the importance of ‘people,’ the focal actors of entrepreneurial activities, has not lessened ( Frese and Gielnik 2014 ; Mitchell et al. 2002 ). In this regard, there are research streams concerned with how global crisis conditions, such as the economic crisis, affect individual entrepreneurs. Meliou (2019) investigated women who decided to start a business during Greece’s financial crisis and discovered that material support from family members, particularly spouses, emotional support, and informational support through social connections, were all crucial. In a study focusing on developing countries, Quintillán and Pea-Legazkue (2019) discovered that the process of internationalization (i.e. whether they sell their products or services internationally) is dependent on the entrepreneurs’ emotional intelligence rather than traditional human assets, especially during the crisis. According to the finding, even in chaotic circumstances such as economic crises, the higher an individual’s emotional stability, the more likely they are to accept risky actions.

4.1.5 Crisis as a Moderator of the Previously Stated Relationship

Some research has focused on whether the association between variables that were discovered in previous entrepreneurship related literature is represented similarly or differently in the unique context of the global economic crisis ( Elitcha and Fonseca 2018 ; Kraus et al. 2011 ). Martínez-Rodriguez et al. (2020) , for example, discovered that the crisis had a moderating effect on how national accounting and fiscal policies influence opportunity or necessity-based entrepreneurship. Santos et al. (2017) , on the other hand, conducted an individual-level study to evaluate the effects of individual efficacy, opportunity perception, and role model perceptions on initial entrepreneurial activity and found that it stayed consistent regardless of the crisis. Giotopoulos et al. (2016) discovered that at the individual level, the influence of an individual’s gender, education level, and sense of opportunity on the level of entrepreneurship changes during a crisis. During a crisis, for example, the effect of gender and educational attainment on growth intention was stronger than in non-crisis times.

4.1.6 Does the Organization Learn From Crises?

Finally, although the number is small, there has been an increasing research concentration incorporating organizational learning theory and investigating whether or not entrepreneurs and their businesses can learn from crises. Both studies in this review that conducted research on this topic viewed the 2003 global economic slump as a precursor experience to the 2007–2008 global economic downturn. During the 2008–2009 period, Brzozowski et al. (2019) found interesting changes in corporate responses. Based on organizational learning theory, they investigated how the experience of the crisis in 2003 affected the company’s subsequent response to the economic crisis of 2007–2008, which revealed that firms took more active steps in the following crisis after taking a prudent stance in the previous crisis. In a similar vein, Cucculelli and Peruzzi (2018) reported that enterprises that modified their business models following the 2003 crisis fared better during the 2007–2008 crisis. This supports the idea that organizations learn from crises.

4.2 1997 Asian Financial Crisis

In times of crisis, ‘desperate entrepreneurship,’ defined as the phenomenon of individuals attempting to start a business despite lacking confidence in necessary skills and abilities to perceive opportunities ( Mühlböck et al. 2017 ), can lead to a ‘refugee effect’ in developing countries. Vial (2011) and Yindok (2021) utilized the 1997 Asian financial crisis as a contextual backdrop for their studies, which examined the factors that influenced the entry and survival of enterprises operating in developing countries during this time, as well as the factors affecting the revitalization of household entrepreneurship. Both studies compared rural areas and cities in developing countries during the financial crisis and discovered that a link exists between the formation of necessity-driven entrepreneurship and geographical and financial characteristics. First, micro-entrepreneurship is encouraged in areas with high-quality formal institutions and infrastructure ( Vial 2011 ). Second, the 1997 Asian financial crisis triggered a temporary surge in entrepreneurship participation, primarily in communities that suffered less of a drop in overall perceived, material well-being, as a result of the crisis. Thus, in the context of developing countries, entrepreneurship serves as a social safety net in times of crisis, particularly for wealthier households. It should be noted that wealthier household enterprises focusing on informal and low-technology were the ones to take on low-skilled workers engaged in service and trade, workers who not only found it difficult to find work during the financial crisis but also needed to fill the subsequent gap in income.

In terms of research methodology, these studies represent good examples of how to best approach a mixed-level analysis, whereby the influence of financial, human, and social capital, as well as the effect of the quality of institutions and infrastructure, were examined to see if a resulting effect on participation in entrepreneurship and on firm survival existed, both during and post-crisis. However, it is vital to explore more advanced research methods that incorporate both macro variables (i.e. quality of institutions and infrastructure) and meso variables (i.e. business ownership) simultaneously, similar to that seen in Vial (2011) , where the 1997 Asian financial crisis was treated as a moderating variable.

4.3 Local Economic Collapse

In the context of a local economic collapse, eight papers conducted an in-depth examination of micro- and meso-level factors that influenced entrepreneurship as part of an interconnected community. To be more specific, except for one qualitative study ( Weaven et al. 2021 ), if we classify based on the dependent variable, seven papers discussed micro-level entrepreneurship as: entrepreneurial intentions ( Arrighetti et al. 2016 ; Gil-Soto et al. 2022 ), entrepreneurial behaviors ( Rani et al. 2019 ; Williams and Vorley 2015 ), the attitudinal changes of entrepreneurial judgment and actions ( Liu et al. 2021 ), work and family balance ( Cesaroni et al. 2018 ), and female entrepreneurship ( Dal Mas and Paoloni 2019 ). Furthermore, three papers addressed the meso-level as community resilience ( Bakas 2017 ), as well as the financial and creative performance of firms ( Cannavale et al. 2020 ; Laskovaia et al. 2018 ) as part of a community with regional characteristics.

When entrepreneurial actors, as individuals or organizations, are able to successfully work together with local community resources, entrepreneurial actors can identify opportunities and implement the necessary remedies to enable long-term recovery following an economic collapse ( Bakas 2017 ; Cannavale et al. 2020 ; Laskovaia et al. 2018 ). As a consequence, the community’s competence and resources end up strengthening the entrepreneurial actors’ will and aptitude, allowing for them to effectively tackle any challenges they face, resulting in a virtuous cycle ( Arrighetti et al. 2016 ; Cesaroni et al. 2018 ). For example, according to Dal Mas and Paoloni’s (2019) study, which considered the financial crisis from an Italian context, potential female entrepreneurs were found to be more sensitive to the complexity of their efforts, making the strong relationship between relational capital and female entrepreneurs a sensitive component in the establishment of new businesses during this time. Similarly, Bakas (2017) found that female handicraft tourism entrepreneurs in Crete and Epirus, Greece, conceptualized their entrepreneurial involvement as being primarily for the community’s benefit, which in turn increased community resilience in the context of an economic crisis. On the other hand, studies focusing on the quality of local institutional norms and an entrepreneur’s behavior and decision-making during a crisis merits further investigation. Liu et al. (2020) examined how and why some foreign entrepreneurs adjust their attitudes towards local institutional norms, such as corruption, more than local entrepreneurs, particularly during a crisis. They employed system justification theory to understand why and how entrepreneurs differ in the extent of their attitudes towards entrepreneurial judgment and actions concerning corruption.

If future studies consider how the characteristics of each local community affect entrepreneurship after the current, global COVID-19 crisis, rather than the various financial crises that have taken place, the results of prior conflicting studies regarding the negative or positive impact of a crisis on entrepreneurship could be clarified.

4.4 The COVID-19 Pandemic

The COVID-19 pandemic represents a crisis that has entirely changed people’s lives. Businesses have been shut down unexpectedly and people were forced to stay in their homes due to a lockdown enforced by governments around the world. A key observation from not only the 2007–2008 financial crisis but also the COVID-19 pandemic, is that the world is very much connected, so much so that the impact of such crises is only becoming more severe and far-reaching in geographic scope. Unlike the 2007–2008 financial crisis, COVID-19 produced a situation of limited movement and mobility as the threat of the spread of the disease increased, fuelling a severe disconnection in society between people and places. A set of papers (43) in this review investigated entrepreneurship in the context of the COVID-19 pandemic. We identified five research themes that are based on the key research questions addressed in these publications, which are outlined below.

Among the various disciplines of entrepreneurship, most studies mainly focus on entrepreneurial actors, such as entrepreneurs and young and small firms. Entrepreneurial actors represent a critical component for the potential sustainable development of the corresponding local communities and countries involved ( Cui et al. 2016 ; Geroski et al. 2010 ; Thornhill and Amit 2003 ). In particular, when entrepreneurial actors cooperate and share local knowledge with community members, they are able to recognize opportunities and implement the responses needed to ensure sustainable crisis recovery ( Korsgaard et al. 2020 ). However, despite some studies that emphasized the importance of local communities and ecosystems ( Bărbulescu et al. 2021 ; Bartz and Winkler 2016 ), research from a community-based perspective is still insufficient. Furthermore, given that the pandemic has prolonged over a significant amount of time, it appears necessary to take a more sophisticated approach in studying entrepreneurship during the pandemic by considering the time horizon throughout the different phases of the pandemic (i.e. before the crisis, the beginning of the crisis, during the crisis) as well as the severity of the pandemic over time.

4.4.1 How has the Pandemic Influenced Potential and Nascent Entrepreneurs’ Decisions to Start a New Business?

The first stream of literature investigates how potential and nascent entrepreneurs responded to the COVID-19 pandemic in terms of new business creation. Studies in this stream of research particularly focused on entrepreneurial intention (e.g. Ruiz-Rosa et al. 2020 ) and entrepreneurial activities, such as the consideration of starting a new business by potential entrepreneurs, as well as early phase activities in new firm creation by entrepreneurs (e.g. Liñán and Jaén 2022 ). These studies showed that despite the unfavorable entrepreneurial environment as a result of the COVID-19 crisis, entrepreneurs still managed to start businesses. A crisis impacts the creation of new firms by fostering the necessity-driven motivations of entrepreneurs, motivations that are triggered when a crisis brings about a reduction in the number of suitable income alternatives ( Hundt and Sternberg 2014 ; Simón-Moya et al. 2016 ). Liñán and Jaén (2022) found that while there could be an initial decrease in overall entrepreneurial activity during the pandemic, the necessity-driven motives of entrepreneurs will likely increase soon afterward. On the other hand, Kuckertz (2021) suggested that habitual entrepreneurs, those who have established ventures several times, were the ones who sought opportunities to start new businesses even under rising uncertainty. The author confirmed that it was the entrepreneurs who perceived opportunities that were the ones to start innovative ventures during the COVID-19 crisis, despite the overall decline in entrepreneurial activities. A key, underlying theme tied to the impact of COVID-19 on entrepreneurship is that the entrepreneur’s perceptions of the crisis, and of the potential opportunities or threats at play, represented an important driver of entrepreneurship. Thus, these studies show that in addition to the various contexts and characteristics of the entrepreneurial environment that exist as a result of the crisis, how entrepreneurs perceived the environment surrounding them explained, to a large extent, their engagement in entrepreneurial activities during this time.

4.4.2 What Challenges and Opportunities did Young and Small Firms Face During the Pandemic?

Scholars found that many young and small firms, as opposed to established firms, are more vulnerable to the significant challenges brought about by shocks ( Bărbulescu et al. 2021 ; Brown et al. 2020 ; Lim et al. 2020 ). The major obstacles discussed in the literature included difficulties in managing supply chains and difficulties in acquiring capital. These challenges were observed at the firm level, as well as within the entrepreneurial ecosystem, which includes private equity investors and venture capitalists. For example, Aftab et al. (2021) showed that small and medium-scale enterprises in Pakistan suffered from the lockdown, as well as from decreases in the demand for products and services, difficulties in managing the supply chain, challenges in maintaining employees, and from a subsequent decline in sales and profits. Brown et al. (2020) found that out of the different types of entrepreneurial finance available, seed financing was the most severely impacted by the COVID-19 crisis, meaning that entrepreneurial start-ups experienced the greatest challenges in obtaining capital.

On the other hand, studies also acknowledged the positive consequences of this global crisis. This perspective views times of crisis as something that can provide a unique environment necessary for the emergence of entrepreneurial and prosperous organizations ( Cucculelli and Peruzzi 2018 ; Davidsson et al. 2021 ; Guo et al. 2020 ). While various governments proactively drove initiatives to slow down the spread of the disease, a variety of innovative products (i.e. testing kits) were developed and growth opportunities were formed in non-contact industries, such as digital commerce, telemedicine, and automation ( Liu et al. 2020 ; Negrutiu 2021 ). In addition, some studies suggested that a crisis drives entrepreneurs to question their previously used responses, making it all the more important for them to develop ways to cope with external shocks ( Kwong et al. 2019 ). This might mean reconstructing organizational resources to stimulate growth, particularly when confronting change ( Dahles and Susilowati 2015 ). For example, Lim et al. (2020) suggested that a firm, as a bundle of resources, experiences a temporal imbalance of resources due to the crisis, which allows entrepreneurs to realign their firm’s resource system, allowing the firm to enter into the next phase of growth.

4.4.3 How did Young and Small Firms Respond to and Overcome the Pandemic?

A variety of studies in our review attempted to understand how young and small firms responded to, and broke through such difficult times, as not all firms enjoyed crisis-induced opportunities during the pandemic. Studies showed that a transformation of the firm represented a key factor in their entrepreneurial journey that allowed for such firms to consider new possibilities. This transformation was achieved through the adoption or innovation of business models (e.g. Guckenbiehl and de Zubielqui 2022 ) or technologies (e.g. Modgil et al. 2022 ), the adjustment of business plans (e.g. Stephan et al. 2020 ), and the reconstruction of resources and processes in combination with internal coordination and external support (e.g. Bărbulescu et al. 2021 ; Habiyaremye 2021 ; Meurer et al. 2022 ). Guckenbiehl and de Zubielqui (2022) , for example, suggested six start-up types, based on their responses to the pandemic: stable beneficiaries, business-as-usual continuers, digital adjusters, adversity survivors, opportunity graspers, and lemonade makers. They also showed that the start-ups that perceived opportunities, as well as adversity in the pandemic, were the ones that engaged in business model changes by adopting or innovating their business models. Considering resilience as a resource-based capability, Anwar et al. (2021) showed that both individual resilience and inter-functional coordination enhance organizational resilience, which in turn has a beneficial impact on sales revenue, sales growth, and client retention. Bărbulescu et al. (2021) found that although start-ups were vulnerable during the COVID-19 crisis, their focus on an information and communication technology (ICT) based business allowed them to develop strong relationships with various actors both inside and outside the industry, thus further helping them to overcome challenges and to build a sustainable ecosystem in the long term. Studies showed that young and small firms, particularly those that utilized digital technologies and continuously strived for innovation, were better at responding to external shocks brought about by the pandemic ( Belitski et al. 2022 ; Habiyaremye 2021 ; Khlystova et al. 2022 ; Modgil et al. 2022 ). Given that a set of papers in this review frequently mention digitalization as a key factor tied to pandemic-induced transformation, we have separated the discussion on digitalization into its own research theme.

In addition to the organizational factors fostering the survival of small and young firms in times of crisis, other studies emphasized the role of the ecosystem ( Bărbulescu et al. 2021 ; Habiyaremye 2021 ; Ratten 2020a , 2020b , 2020c ), given that entrepreneurs and their firms are embedded in society and that actors within the ecosystem are interdependent with each other. Some studies noted that knowledge sharing and the construction of a strong ecosystem helped firms to achieve higher performance or experience long-term growth during the COVID-19 pandemic ( Bărbulescu et al. 2021 ; Habiyaremye 2021 ). For example, Habiyaremye (2021) found that enhanced knowledge sharing through cooperative learning fostered higher innovation performance and efficient resource use for the organization and its partners, both during and after the COVID-19 crisis. In summary, at an organizational level, a transformation of organizational resources and processes supported by cooperative members is needed to break through such difficult times and to allow for new opportunities. Furthermore, in the context of persistent threats as a result of a pandemic, the interconnected nature of the ecosystem can enable entrepreneurial actors to utilize local knowledge and benefit from the interdependence between actors so that they can construct the necessary responses within the community in crisis.

4.4.4 What Role did the Digital Capabilities of Young and Small Firms Play During the Pandemic?

As this long and unpredictable crisis continued, social actors struggled to gain the resiliency necessary for returning to the optimal, pre-pandemic state. Pursuing a path that returns to the former best state does not guarantee future success, especially when a crisis continues to progress. A variety of studies showed that the utilization of digital technology is a key that enables resilience as well as transformation during a crisis like the COVID-19 pandemic. Studies highlighted that digitalization assisted firms in using emergency responses as well as in responding strategically, quickly, and efficiently to societal crises, thus improving performance ( Belitski et al. 2022 ; Khlystova et al. 2022 ; Modgil et al. 2022 ). Moreover, digital technology helped entrepreneurs and their firms to not only bring about critical changes and increase efficiency during the crisis, but also to connect to necessary support, resources, and other ecosystem participants. For example, Ratten et al. (2021) found that co-creation opportunities are a common strategy for collaboration in the sports industry during times of crisis and engaging in online interactions helped sports entities to overcome the physical limitations brought about by social distancing policies. Meurer et al. (2022) showed that when access to help was significantly limited by social distancing tactics during the COVID-19 pandemic, entrepreneurs still sought and obtained support from online communities in resolving problems, collecting critical resources, evaluating ideas in early venture stages, understanding new emerging topics, and planning. As the pandemic froze the normal functioning of society, a transformation was needed to break through such difficult times. However, this transformation cannot be limited to merely returning to ‘the old good days’, especially when a crisis continues to progress. The studies in our review evidenced that digitalization allowed entrepreneurial actors to effectively gain the cooperation of others and to adjust to a new business environment.

4.4.5 How did the Institutional Environment Affect Entrepreneurship During the Pandemic?

Although the COVID-19 pandemic has had unprecedented, devastating effects across the world, all countries did not suffer in an identical manner ( Liñán and Jaén 2022 ; Liu et al. 2020 ). Scholars have come to realize that the institutional context has an important role in explaining such differences. In particular, studies have focused on formal institutions (e.g. the political system, government policy, and the quality of the business environment) rather than informal institutions (e.g. the level of corruption and cultural norms). For example, Liñán and Jaén (2022) emphasized the importance of the institutional context in transitioning entrepreneurial intention into realized behaviors. They highlighted that necessity-driven entrepreneurship is more prevalent in less favorable business environments (e.g. emerging countries, states with high fragility). Galindo-Martín et al. (2021) found that the countries that had higher levels of economic competitiveness before the pandemic also experienced more entrepreneurship and more sustained development during the pandemic due to their appropriate infrastructure, institutions, and educational and health systems.

Government policy received particular interest from these scholars as the pandemic brought about rapid government intervention from most countries to prevent the widespread transmission of the disease and to foster societal recovery. Lockdown policy, monetary policy, and fiscal policy are examples of such interventions. Stephan et al. (2020) found that the severity of country-level lockdowns had an impact on the degree of adversity faced by entrepreneurs and that those who were more severely affected enjoyed less hedonic and eudaimonic well-being, as well as more distress. Piva and Guerini (2022) showed that the reduction in new firm creation rates during the initial pandemic wave was mainly seen in areas where the pandemic was more severe, whereas lockdown policies had negative effects on firm creation rates, regardless of the level of pandemic severity. They also showed that the impact of firm support policies was negative in the regions where the pandemic was more severe, but the impacts of demand stimulus policies were positive and stronger where the pandemic was less severe. However, they observed that these effects disappeared in the second wave. Galindo-Martín et al. (2021) showed that monetary policy encouraged entrepreneurship during the COVID-19 pandemic as entrepreneurs benefited from increased loan availability and low-interest rates. They also confirmed that fiscal policies had a positive effect on entrepreneurship, but to a lesser extent than monetary policies.

The relationship between the institutional context and entrepreneurship is not limited in a unidirectional fashion. Audretsch and Moog (2022) suggested that entrepreneurship and democracy are closely linked as democracy and entrepreneurship are both fuelled by decentralized, independent, and autonomous decision-making. In particular, they argued that the pandemic allowed the government to impose restrictions on peoples’ freedoms, which is also the fundamental principle of entrepreneurship. Although Piva and Guerini (2022) separated the effect of lockdown policies from the effect of pandemic severity during different waves of the pandemic, most studies did not distinguish the effect of lockdown policies from pandemic severity and also neglected to account for the time horizon, which may play a key role in understanding how the impact of the pandemic has changed over time, depending on the relevant government policies that were enacted.

4.5 Environmental Disasters

Natural catastrophes, as opposed to crises with human or technological precursors, cause unforeseen change, ranging from social transformations to changes in the role of the individual in entrepreneurship ( Bustamante et al. 2020 ; Dinger et al. 2019 ). Despite the fact that environmental disasters are infrequent, when earthquakes, tornadoes, floods, and volcanoes strike contemporary, industrial civilization, the affected region suffers a severe economic and social crisis. However, natural disasters not only disrupt networks and destroy infrastructure, but also provide new opportunities ( Boudreaux et al. 2022 ). In this context, the four studies covering environmental disasters within this review demonstrate that entrepreneurship, such as firm creation, individual agency, entrepreneurial preparedness, and start-up activity, has the potential to be a catalyst for community restoration, even in disaster-stricken areas. Based on the theory of planned behavior, Bustamante and colleagues (2020) investigated the moderating effect of an earthquake that took place in Chile on the link between entrepreneurship-oriented beliefs (behavioral, normative, and control beliefs) and entrepreneurial intentions. Dinger and colleagues, (2019) study, which analyzed six American communities that were affected by environmental disasters (i.e. tornado, flood), viewed entrepreneurship as an act of individual agency driven by a social, community-embedded identity. The authors found that the opportunities to engage in the recovery process post-crisis can influence the long-term dynamics and trajectories of the community. Muñoz et al. (2019) demonstrated how entrepreneurs living in communities under constant threat of volcanic eruptions prepare to continue their entrepreneurial activities or participate in new ones even after the expected eruption occurs. Also, researchers note that the effect of natural disasters on entrepreneurial activity is nuanced and contingent upon country governance ( Boudreaux et al. 2022 ). According to Boudreaux et al. (2022) , natural disasters tend to encourage more start-up activity, but only in countries that have high-quality governance.

In sum, entrepreneurship during and after a catastrophic environmental disaster, can also act as a recovery mechanism for the communities and societies involved. In comparison to other crises, studies covering environmental disasters attempted to reveal some of the more specific, inner psychological mechanisms at play by applying theories such as the theory of planned behavior or social identity theory, in order to help explain the importance of the relationship between human psychological factors and entrepreneurship. This suggests that even in the face of COVID-19, scholars have opportunities to investigate entrepreneurship more extensively by incorporating theories stemming from societal (i.e. crisis in context theory), psychological (i.e. socio-emotional decision theory), and educational (i.e. field theory) fields.

4.6 Political Conflict

The study of entrepreneurship and political conflict covers the creation of small businesses by entrepreneurs and enterprises in areas where conflict persists, with a particular focus on harsh environments. Past conflicts, in addition to current political struggles, represent key sources of poverty given the inherent damage to economic activity and livelihoods, as well as the perpetuation of reinforced location dependence. Overcoming conflicts and enabling entrepreneurship in conflict-stricken regions may require alternative strategies and approaches, such as networking, local knowledge, major external investment, top-down government efforts, or capacity building ( Abebe 2022 ; Cheung and Kwong 2017 ; Churchill et al. 2021 ; Mittermaier et al. 2022 ). The approaches to entrepreneurship research on political conflict is two-fold, including: the bricolage-driven approach of refugee entrepreneurship ( Abebe 2022 ; Kwong et al. 2019 ; Mittermaier et al. 2022 ; Nisar Khattak et al. 2021 ) and the adversity-driven approach ( Churchill et al. 2021 ; Hayward et al. 2022 ).

First, the bricolage-driven approach has recently garnered the attention of scholars interested in refugee entrepreneurship because of its potential to offset the immense socio-economic issues triggered by the “refugee crisis” of the mid-2010s ( Abebe 2022 ). Bricolage, which can be defined as “making do with whatever is at hand [involves the] redeployment of discarded, disused, or unwanted resources-at-hand, be it physical artefacts, skills or knowledge, in ways different from those for which they were originally intended” ( Levi-Strauss 1966 ). War, infrastructure destruction, and the lack of physical mobility all limit access to a wider innovation system ( Cheung and Kwong 2017 ). The difficulties faced by displaced entrepreneurs bring about both opportunities and challenges in deploying bricolage ( Kwong et al. 2019 ). As such, bricolage is increasingly being recognized as an important strategy to tackle resource constraints, especially in conflict-affected contexts.

Second, the adversity-driven approach illustrates how, according to the underdog theory of entrepreneurship, early adversity, such as political difficulties, can positively influence the creation of entrepreneurship in adulthood ( Churchill et al. 2021 ; Hayward et al. 2022 ). Although such approaches are uncommon in entrepreneurship research, they are very common in childhood adversity-driven longitudinal research, where progress is examined from the time of the observed event to the subsequent outcomes ( Rauch and Hulsink 2021 ). According to emerging theory on “underdogs”, persons with less human capital or other disadvantages may choose or be forced to pursue self-employment or entrepreneurship ( Miller and Le Breton-Miller 2017 ). Ineffective personal conditions of an economic, sociocultural, cognitive, physical, and emotional nature may have an equally important role to play in motivating people to become successful entrepreneurs in developing countries with political difficulties ( Miller and Le Breton-Miller 2017 ). The employment difficulties these individuals face drive many of them to start their businesses within the informal sector. As a result, issues like childhood poverty and opportunity gaps in developing nations produce circumstances and experiences that inspire certain adaptation needs, which in turn encourage outcomes like work ethic, risk tolerance, social and networking skills, and creativity ( Hayward et al. 2022 ). In this broad context, applying the underdog hypothesis in developing nations with political difficulties may more effectively explain the consequences of entrepreneurship, such as whether and when people become entrepreneurs, as well as their level of success.

Recently, entrepreneurship studies have shifted from purely examining the individual traits of entrepreneurs to understanding how entrepreneurs and their behavior evolves over time. As a result, future entrepreneurship studies that account for political conflict should adopt a phenomenon-driven strategy to pull numerous concepts and arguments from many domains in order to experimentally map and fill the research gaps that exist in the field ( Abebe 2022 ). We believe it is important to note that future research should apply the adversity-driven approach from various geographical and historical contexts so as to ensure the validity of the research findings. For example, future research could also investigate how experiences with past political conflicts affect refugees and “underdogs” in terms of their coping mechanisms as entrepreneurs, as well as what particular actions these individuals take to create new ventures.

5 Discussion

Our literature review systematically analyzed research at the intersection of crisis and entrepreneurship. We divided the crisis construct into six types and examined how each of them interacted within diverse entrepreneurial contexts. As a result, we were able to answer our two research questions.

Research Question 1.

How are the different types of crises addressed in entrepreneurship literature, and what similarities and differences exist?

The key findings answering this question are summarized in Table 3 . Regarding the impact of the global financial crisis on entrepreneurship, researchers paid most attention to themes with theoretical tensions between two opposing points of view: the questions of whether the economic crisis boosts or regresses entrepreneurship and whether small businesses can do better during the crisis. These questions are still being debated. Another theme focuses on the interactional or eco-system perspective, which acknowledges that locations, communities, and nations all play a role in the formation and development of entrepreneurship, and conversely, that small businesses can also have an impact on regional backgrounds. A series of scholars have also shown interest in the individual experiences of entrepreneurs during times of crisis. Finally, although the portion was not large, there were a series of studies that made efforts to move away from simply observing positive or negative effects, and instead, testing existing theoretical relationships in a crisis context or seeing whether firms can accumulate and learn from a crisis experience.

With the outbreak of COVID-19, many new studies have focused on natural disasters as the key contextual background of interest. We identified five research themes underlying the findings and discussions in these newer studies. Some themes are comparable to the financial crisis, while others are dissimilar. A few of these studies applied the anti-cycle view that entrepreneurial activities are promoted more in the face of a natural crisis. However, overall, this emerging research departs from merely testing the pros and cons of traditional tensions and instead focuses on taking a deeper look at the processes affected. While studies on financial crises focused on financial adversity, such as the high cost of capital and financial buffers to resiliency, studies covering natural disasters focused on obstacles in logistics and, in particular, on the selection of products and services. In a similar way, studies focusing on the survival of small businesses during times of crisis delved into specific strategies regarding how small companies survived better than their larger counterparts, rather than merely comparing survival rates. Similar to studies covering the 2007–2008 financial crisis, the institutional environment and interactions within such environments remained one of the important themes in natural disaster focused papers. The last notable difference was the emphasis on ‘digitalization’, particularly for studies encompassing COVID-19. Numerous studies concur that digital competence was essential for crisis survival.

Summary of key findings and future research directions.

Research Question 2.

How can we broaden our understanding and deepen our insights into the relationship between a crisis and entrepreneurship?

Our second research question serves as the most critical role of the review study, which is to help researchers identify key research gaps and fresh theoretical perspectives ( Paul and Criado 2020 ). To best serve this goal, we suggest future research directions in three ways. First, the specific topics to be explored by each detailed crisis and research theme are individually summarized in Table 3 . Second, we discuss possible directions and cautions for further development centering on the themes dealt with in the papers reviewed in this study. Third, we present two perspectives that have not yet been primarily addressed in the studies reviewed here, but that deserve the attention of future research.

5.1 Future Research Directions and Cautions Based on the Current Review

There are five key cautions and future research recommendations we would like to provide to scholars based on our review of the current literature. First, research focusing on the framework and classification of the different definitions of entrepreneurship may be critically beneficial. Researchers have presented several alternative definitions of entrepreneurship. Entrepreneurship was defined as an entrepreneurial activity at various levels (e.g. individual, organizational, national), self-employment ( Elitcha and Fonseca 2018 ), and new firm creation ( Cesaroni et al. 2018 ). Considering the multifaceted characteristics, it is inevitable that scholars would use different definitions according to their research questions, however we would like to remind scholars that it is important to consolidate knowledge on the topic under a more definitive framework. Similarly, measures for entrepreneurial activity varied greatly, including: entrepreneurial opportunity perception ( González-Pernía et al. 2018 ), the expected number of jobs (business units) in 5 years ( Devece et al. 2016 ), firm economic performance ( Brzozowski et al. 2019 ), and entrepreneur finance by volume and types of firms ( Brown et al. 2020 ). Analyzing what variables are typically used and how they are quantified may help academics interested in the topic to gain clarity and to identify potential study options.

Second, empirical research showed that the degrees of analysis in some studies did not match the proposed concepts. Specifically, some studies employed individual survey data to explain organizational performance or growth. For example, Kraus et al. (2011) examined the effects of market turbulence on firm performance during the crisis using survey data (n = 111), but the company’s performance was measured by individual respondents, not at the firm level. Also, the study of Pinho and de Lurdes Martins (2020) utilized GEM data to analyze the impact of institutional factors on new business opportunities in adverse macroeconomic environments. This study also measured institutional factor conditions (normative, cognitive, regulatory) using individual respondents from NES-GEM, which are not at the institutional level. If it is not possible to obtain data at the corresponding level of interest, multiple responses should be collected and measured and composite validities should be confirmed. In sum, researchers should offer a definition of entrepreneurship that agrees with the focus of the chosen, suitable research model. They should also confirm that their research model is consistent with their developed concepts of entrepreneurship and chosen level(s) of analysis. When interpreting research results, care must be given to prevent the expansion of the interpretation beyond the limits of the study. Therefore, researchers should be aware that contradictory results regarding whether a crisis positively or negatively impacts entrepreneurship very much depends on how a study defines entrepreneurship, determines the level(s) of analysis, and evaluates the factors involved.

Third, combining research themes is worthwhile. Each research theme establishes meaningful findings, but each interprets the problems through its own theoretical lens. Accordingly, we could not predict the more complex, multifaceted effects of a crisis on entrepreneurship. Certain research themes led to different, often conflicting conclusions. Abdesselam et al. (2017) stated that in response to the business cycle, entrepreneurial activities will inevitably shrink. However, in the research theme on the viability of small companies based on the Schumpeterian view, the effect of the macro environment in atrophying entrepreneurship was surprisingly small ( Davidsson and Gordon 2016 ). The discovery of these distinctly opposing main effects suggests the existence of a third contextual factor that current research has not yet considered. Therefore, comprehensively combining the major influential factors suggested among different research themes is promising. There have been a few studies that have attempted to do this. Hundt and Sternberg’s (2014) took into account time, region, and individual influences in determining whether the global financial crisis promoted entrepreneurial activities. Vegetti and Adăscăliţei (2017) also considered country-specific differences by entering 25 EU countries as high-level variables. Although they combined regional effects, other meaningful combinations are also possible. For instance, we can extend the crisis-learning theme by testing whether regions (not individuals or firms) that went through multiple crises served better for resilient backgrounds.

Fourth, future studies may wish to reflect upon each crisis’ specific characteristics. While studies on natural disasters are expanding, it was difficult to discover fundamental differences from studies on the financial crisis, especially in terms of variable operationalization, theorization, and conceptualization. Rather, many studies simply categorized the impact into pre-and post-crisis ( Brown et al. 2020 ). Failing to consider the inherent nature of each crisis may constrain the ability for researchers to refine interpretations and implications. For example, a financial crisis and a crisis caused by the spread of an epidemic disease can affect start-ups in very different ways. The former can dramatically increase a company’s capital acquisition costs, and the latter can limit supply-related decision-making. Even if the end result is the same, the existence of different mechanisms and surrounding factors depending on the type of crisis would point to findings that would allow for entrepreneurs to cope with different types of crises in more sophisticated ways. To pose an example related to COVID-19, future research may wish to tap into the rich, public data regarding virus infection and dissemination rates. Research themes regarding how such rates affected the speed of entrepreneurship recovery, or how an entrepreneur’s COVID-19 infection experience affected the progress of work (e.g. Chong et al. 2020 ), could be explored.

Lastly, in-depth theoretical analysis is needed to combine crisis and entrepreneurship-related research more succinctly. Most of the literature focused solely on the results of analyzing entrepreneurship during times of crisis without providing a sufficient theoretical explanation of the relationship between entrepreneurship and crises. Two exceptions include the studies by Dinger et al. (2019) and Bărbulescu et al. (2021) . These studies demonstrated an effort to explain the manifestation of entrepreneurship in times of crisis, and they proposed hypotheses that harmoniously described the traits of both entrepreneurship and crises. For example, Dinger et al. (2019) applied social identity theory to describe how opportunities to engage in the recovery process, post-crisis, can influence the long-term dynamics and trajectories of the community, whereas Bărbulescu et al. (2021) applied quadruple helix theory to explain how young people’s attitudes and behaviors impacted entrepreneurship participation during COVID-19. Future research may want to incorporate more diverse theories that hold a higher relevance to crises, such as the Crisis in Context Theory (CCT) ( Myer and Moore 2006 ), to uncover fruitful theoretical explanations of entrepreneurship in times of crisis.

5.2 Future Research Beyond the Current Review

While the previous section outlined five different avenues to deepen existing discussions, this section presents broader approaches to studying entrepreneurship in times of crisis from new theoretical lenses that may engender new research themes. In contrast to the narrow economic view, which regards crises as market failures and emphasizes that entrepreneurship is only to take advantage of such opportunities, the eco-systematic perspective has become popular ( Audretsch et al. 2019 ; Jabłońska and Stawska 2020 ). This perspective stresses that companies do more than solely making profits and emphasizes the necessity of analyzing mutual interactions among stakeholders (e.g. government, communities) that surround entrepreneurship ( Kotsopoulos et al. 2022 ). Our review showed that the interaction between a company and the environment is receiving attention regardless of the type of crisis. Thus, while keeping this eco-systematic perspective in mind, we would also like to extend this view into two separate and more nuanced avenues that merit further attention.

5.2.1 A Third-Party Perspective

The third-party perspective has received increasing attention in the field concerning personal crisis, such as being the target of abusive behaviors or personal aggressions (e.g. Dunford et al. 2015 ; Hershcovis and Bhatnagar 2017 ). The focus of this perspective was to uncover when and why third parties engage in helping behaviors to the victim. By extending this perspective to entrepreneurial crisis contexts, entrepreneurial firms and entrepreneurs can be seen as victimized first parties to various crises, and any surrounding stakeholders, namely the government, large corporations, capitalists, local communities, and consumers, may all fall into the third party categorization.

Particularly during times of crisis, there is a tendency for firms to desperately rely on aid from the government or financial investors to overcome the risky valley. For instance, according to Murtinu (2021) , start-ups that managed to gain support from venture capitalists also obtained information about government institutional reforms more quickly, thereby achieving more favorable market evaluations. Therefore, it is critical to understand how these key crisis-savers view the focal companies during times of crisis. The third-party perspective has highlighted the importance of the third-parties’ attributions and the first-parties’ individual characteristics in determining whether or not to provide help ( Mellor 1992 ; Skarlicki and Kulik 2004 ). In entrepreneurial contexts, institutions may not help if they think that firms have not adequately prepared for the macro-crisis environment or that the company is not worth helping. Therefore, future research can focus on discovering which criteria institutional actors may use to determine which ventures to save first in the face of a crisis. For example, such decision making could depend upon the firm’s diversification strategy, the entrepreneur’s past crisis-related experience, or the CEO’s willingness to sacrifice a share of their ownership.

Qualitative interviews or surveys of government officials or investors can be used in tandem with the third-party perspective to apply diverse experimental methodologies that current literature has yet to implement. As mentioned previously, third-party studies are often closely related to the cognitions of key stakeholders ( Mellor 1992 ). Scenario-based manipulation could be adopted, where the characteristics of the business, or of the founding CEO, are manipulated. The subjects of the experiment would take on the perspective of a venture capital investor or of a government representative and decide which business they would fund, and ultimately save, amid the crisis. Such findings would hold important, practical implications for entrepreneurs in terms of improving their resiliency and survival rates via obtaining the timely support of stakeholders, particularly in the face of future crises.

In addition, the third-party perspective can shed light on valuable research themes at the individual level. Prior literature has extensively covered the personal difficulties and stresses experienced by entrepreneurs in the midst of a crisis. However, meaningful insights could be obtained by observing the feelings and responses of those closest to an entrepreneur, such as a spouse, partners inside the company, team members, as well as other founders. Given that close third-party interpretations of the situation and the emotional support that they provide can be decisive in determining the entrepreneurs’ well-being during times of crisis, this approach warrants future exploration ( Hobfoll et al. 1986 ). For instance, employee perceptions of the founder’s efforts during a crisis may affect their unity and loyalty, and subsequently, the venture’s resiliency. From the viewpoint of consumers, which represent another major third-party ( Roundy 2018 ), if the social value or innovative nature of the business is well-recognized, the firm may be better placed to overcome the crisis through more active consumption. We believe that utilizing this approach and considering the various third-party perspectives at play can help future research to generate novel and practical contributions.

5.2.2 A Quality-Concerning Approach

Underlying many of the discussions so far is a common belief that entrepreneurship is desired and is something that our society should nurture, especially in times of crisis. According to the reviewed articles, this is true, to a certain degree, when it comes to leading economic growth ( Bakhtiari 2019 ), bringing about social innovation ( Sedera et al. 2022 ), and maintaining the livelihoods of lower-income populations ( Yindok 2021 ) in crisis. However, are all new businesses equally desirable and helpful during a crisis? According to Youssef et al. (2018) , certain conditions must be met in order for entrepreneurship to have a positive effect. We suggest that the current theoretical focus needs to shift from one that tracks the number of entrepreneurial activities amid a crisis, to one that measures the quality of such activities, especially on a long-term basis.

According to research, necessity-based entrepreneurship increases significantly after a crisis ( Martínez-Rodriguez et al. 2020 ). However, Acs (2008) warns that necessity-driven new firms are likely to negatively influence the economy’s sustainable development. This is because entrepreneurs with low levels of education or capital, particularly during a crisis, do not pioneer new ideas like opportunity-oriented entrepreneurs, but instead focus only on imitative start-ups that are easy and quick to establish ( Venâncio and Pinto 2020 ). Omri and Afi (2020) also commented that the more these start-ups pursue purely economic profits, the more insensitive they are to environmental problems. We have observed similar cases up close during the COVID-19 crisis. Small sized mask and sanitizer manufacturers have surged due to the outbreak of the pandemic. They aimed to satisfy the rapidly increasing market demand for such products, but supply soon exceeded demand, threatening their survival due to the large amounts of unsold inventory ( Aeppel 2021 ). Not only did this waste resources, but it also hurt employees and communities in the event of business closure. Therefore, future researchers are encouraged to observe not only the number of start-ups, but also the sustainable quality of these start-ups.

Another topic that deserves the attention of quality-conscious scholars is ‘corruption’ ( Abdesselam et al. 2017 ) because in the midst of chaos lies the lure of embezzlement. Governments provide tax credits, loans, and subsidies to stabilize global and local crises. For example, the U.S. adopted a COVID-19 stimulus program providing $1.9 trillion of support to small businesses and individuals. Given that this financial support needed to be delivered quickly, it is doubtful that the delivered financial or material aids were used as intended. Also, it is unclear how many start-ups that received these funds ended up surviving and creating long-term value, as opposed to launching and terminating their business only to secure policy funds. After tracking 129 firms over 4 years, Stevenson et al. (2021) found that, contrary to expectations, government-granted start-ups did not have a long-term profitability advantage. Therefore, the possibility of such embezzlement in a crisis context can be investigated by referring to studies on CEO morality (“Antecedents of Corporate Scandals: CEOs’ Personal Traits, Stakeholders’ Cohesion, Managerial Fraud, and Imbalanced Corporate Strategy | SpringerLink” n.d.) or unethical behaviors that favor the company, often called unethical pro-organizational behaviors ( Umphress et al. 2010 ).

Research on other actors in entrepreneurial ecosystems may benefit from a quality-oriented approach. During a crisis, the qualitative characteristics of the institutional environment changes swiftly, as do enterprises. Boudreaux et al. (2022) proposed the significance of examining institutional changes during crises like COVID-19 and their long-term impact. The ecological perspective revealed that the government and geographical background had a great influence on its survival, yet the majority of the attention was focused on economic qualities. However, aside from GDP, institutional actors have a number of characteristics that can determine their resilient momentum. The degrees of a government’s democracy ( Audretsch and Moog 2022 ), morality ( Massaro et al. 2022 ), grant policies ( Srhoj et al. 2022 ) and public health policies ( Belitski et al. 2022 ) may all affect the quality of formal institutions. It should not be overlooked that governments are equally prone to corruption ( Liu et al. 2021 ). Communities, as informal institutions, have different cultural traits ( Khlystova et al. 2022 ) or pro-social networks ( Meurer et al. 2022 ). We hope researchers investigate not only how belonging to an economically prosperous region aids survival in a crisis, but also how these varied institutional qualities affect entrepreneurship during times of crisis.

Funding source: Ministry of Education of the Republic of Korea and the National Research Foundation of Korea.

Award Identifier / Grant number: NRF- 2021S1A5B5A16076168

Research funding: This work was supported by the Ministry of Education of the Republic of Korea and the National Research Foundation of Korea (NRF- 2021S1A5B5A16076168).

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Economy Strong as 2023 Ended

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3 Reasons Why Inflation Fears Shouldn’t Block a Well-Designed Economic Package

Stimulus payments, child tax credit expansion were critical parts of successful covid-19 policy response, amid signs of economic improvement, an overly aggressive fed could trigger a recession.

Unemployment Insurance System Unprepared for Another Recession

Tracking the Recovery From the Pandemic Recession

Unemployment Insurance Bill More Likely to Hurt Than Help Anti-Fraud Efforts

Congress Should Permanently Strengthen Economic and Health Security for Front-line Workers and Millions More

New on this topic, wyden-crapo ui bill a limited but positive step forward, economy remains resilient at mid-year, house debt-ceiling-and-cuts bill cuts health coverage, food assistance, income support, and other national priorities, gives billions to wealthy tax cheats, 5 reasons house republicans should stop using debt ceiling as a bargaining chip, robust covid relief bolstered economy and reduced hardship for millions, state of the union, budget offer opportunities to put forward vision for stronger, more prosperous nation, policy basics, economic growth is key to improving living standards and the quality of life across the united states. .

We examine how changes in the economy affect federal and state budgets, and how federal and state budget and tax proposals would affect economic growth. We also examine trends in employment and promote reforms to strengthen the unemployment insurance system, provide more adequate federal and state minimum wages, and create policies that would lead to full employment.

Fiscal Stimulus

How many weeks of unemployment compensation are available, the minimum wage, unemployment insurance.

View All Policy Basics

Long in Recession, Puerto Rico Needs More Than Just COVID-19 Relief to Overcome Its Crises

'Something has been changing': Why a top economist is still worried about a recession even as the US economy keeps growing

• Recession risk in the US is rising, says economist David Rosenberg of Rosenberg Research.
• Rosenberg's analysis shows 45% of recession indicators have been triggered, up from 10% in 2022.
• He advises diversifying portfolios with Treasurys, gold, and defensive stocks like utilities.

The probability of a recession hitting the US economy is rising after a flurry of signals have flashed in recent weeks and months.

That's according to economist David Rosenberg of Rosenberg Research, who compiled a list of recessionary indicators in a note on Friday.

"What is the best recession indicator? That's a hard question to answer — why not dodge it completely and just look at all of them?" Rosenberg asked.

Rosenberg's compilation of 20 recessionary indicators comes as the US economy continues its resilient run, defying recession callers.

Second-quarter GDP growth was revised higher-than-expected to 3.0% from the 2.8% expected on Thursday, retail spending data is still solid, and consumers could soon get another breath of life when the Federal Reserve cuts interest rates, which is expected to happen in September.

But according to Rosenberg, some worrying signals have historically only flashed on the precipice of an economic downturn.

"The 'indicator of indicators' indicates recession," Rosenberg said.

Of the 20 recession indicators compiled by Rosenberg, nine have been triggered.

Some of the recession signals that have flashed include the Sahm Rule, the Leading Economic Indicator Index, and the inverted yield curve, among others.

Related stories

Many of the recessionary indicators that have not yet flashed are found in the manufacturing and transportation sectors, which remain solid.

"Currently, 45% of the recession indicators we tracked have been triggered. Going back to 1999, that's never happened without a recession occurring," Rosenberg said.

The list of signals flahsing has steadily risen since 2022, when only 10% were triggered. That rose to about 25% in 2023 and the first half of 2024.

But since then, the recession warnings have been growing.

"Sometimes more is more, and this is a case in point. Looking at recession thresholds across different sectors of the economy makes it clear that something has been changing since mid-2024 — the long-anticipated slowdown may finally be arriving," Rosenberg said.

To prepare for a potential economic downturn, Rosenberg recommended clients diversify their portfolios in "recession-proof" assets like Treasurys and gold and tilt them to defensive equities like utilities and consumer staples.

Below is a list of the 20 recession indicators compiled by Rosenberg Research.

Watch: What happens when the US debt reaches critical levels?

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100 Economic Crisis Essay Topic Ideas & Examples

🏆 best economic crisis topic ideas & essay examples, 👍 good essay topics on economic crisis, 🎓 most economic crisis topics to write about, 📌 simple & easy economic crisis titles.

• Nigeria’s Economic Crisis Causes of Nigeria’s Economic Crisis Consumers, producers, and efficiency of the market The decline in Nigeria’s economic growth can be attributed to market shortages of its petroleum products especially Kerosene and diesel.
• Ford Motor Company During the Great Depression and Today’s Economic Crisis The paper will further compare and contrast the events and the processes of the company during the two bad economic times.
• The Impacts of the US & Global Economic Crisis on the UAE Businesses The market in the UAE was in boom due to the easy and cheap accessibility of capital that resulted in high degree of lending and borrowing and high level of investment and consumption.
• Economic Crisis and Its Social and Psychological Constraint The failure of large businesses, decrease in consumers’ wealth and demand, and a considerable decline of economic activities also led to the social, cultural, and moral crisis due to the rise of unemployment.
• The Economic Crisis in Dubai 2008 In response to the economic crisis, Dubai, Abu Dhabi, and Dubai World struggled consistently to alleviate the impact of global financial crisis, which affected many of its robust sectors of the economy.
• Effects of Current Problems of the Euro Zone The current problems affecting euro zone are not only affecting the European states but are also affecting other countries worldwide. This paper will look at the effects of the euro zone problems on Greece and the United States.
• The New Deal: The Great Economic Crisis in the United States In the absence in the U.S.of a state system of social protection for victims of economic disasters, the crisis exacerbated social class contradictions and led to widespread labor unrest.
• Economic Crisis: Debate on Socialism Therefore, blaming socialism alone is not sufficient to explain the crisis in Venezuela and the risks to the United States. Thomas Sowell states that promising wealth tax is a politician’s means of capitalizing on the […]
• Customer Loyalty in Fast Food Industry Under Current Economic Crisis The objective of this research is to evaluate different customer loyalty programs offered by companies operating in the UK Fast Food Industry to induce more sales and assess their effectiveness amid of the current economic […]
• South East Asian Economic Crisis This research paper attempts to review what caused the economic crisis in South East Asian nations in 1997 and 1999 and the role of IMF in addressing the crisis and how IMF was criticised for […]
• Crisis Economics: A Crash Course in the Future of Finance The second part of the book talks about the current situation as the world experiences the economic meltdown. The most remarkable strength of this book is the fact that it is about a current situation […]
• The Lehman Brothers and the Current Economic Crisis in the U.S. Although many financial analysts trace the current financial meltdown to the housing bubble that was witnessed earlier in the decade, it remains less clear as to how things got out of hand to reach such […]
• The U.S. Economic Crisis: Root Causes and the Road to Recovery The subject of investigation is the research of possible causes which led to the economic collapse and the most appropriate ways to stimulate the national economy for future development. The article describes the root causes […]
• Economic Crisis: Social & Psychological Impact The choice to write on the topic Economic Crisis, is justified by the need to understand and handle the effects of economic crises on society generally, and focally on the individual.
• Dubai’s Debt Crisis & Global Economic Shock The crisis has to do with how Dubai has asked for a “standstill” on the money owed by Dubai World which is a state-owned conglomerate of the Dubai Inc.group of companies.
• Analyzing Economic Recovery Outlook: Review of ‘From Bear to Bull’ The main idea presented in the article is about the recovery of the economy that according to the author would be speedier than expected.
• Industrial Relations and the Economic Crisis As the industrial dispute is a phenomenon that affects economic and social sector, it should be approached with the help of the pluralist perspective to the industrial relations.
• My Renewed Thinking After the Global Economic Crisis At the onset of the global economic crisis and the fall of several financial institutions, my perception of the accuracy of the data that they provide has begun being influenced in the negative.
• Economic Crisis and Theories of Its Causes As a result of this, Marx developed different and generally contradicting theories economic crisis namely; underconsumptionist approach, the theory of capital over accumulation and approach of tendentially falling profit rate.
• Boeing Addressing Economic Challenges and Crisis The acronym 7S in the name of the framework comes from 7 crucial factors that the author, McKinsey, locates in every organization.
• Oil Dependency and Economic Crisis in Venezuela With the end of the last cycle of high oil prices in 2014, it became clear that the Venezuelan government has not made adequate steps to prepare the country’s economy to function in the new […]
• How Saudi Arabia Can Overcome Economic Water Crisis? In Saudi Arabia, the water sector has undergone significant transformation as the government tries to mitigate water crisis. The problem of the economic water crisis in Saudi Arabia cannot be attributed only to natural causes.
• US Economic Crisis & Foreign Competition As such, the future of USA economically is in the hands of the Chinese if the government and the business owners will not provide a solution to the bombes launched against the country.
• Brazilian and Argentine Economic Crisis The crisis has worsened because of economic policies put in place by the government and ratified by the International Monetary Fund and the United States’ authorities.
• Economic Crisis in Greece This paper is aimed to evaluate the position of Greece in the euro zone, and it also focuses on the effects which Greece may suffer if it decides to leave the euro zone.
• The Financial and European Economic Crisis 2008 – 2012 Such events as decline of the trade in the international market along with the extreme tightening of the credit led to the quite predictable consequences, one of them is the lowering of the level of […]
• Economic Crisis of Europe The European Union has embraced tougher measures to ensure economic reforms in the nations that are most affected by the debt.
• Euro Zone Economic Crisis and Its Impact This led to the introduction of rules that were to be followed the EU members so as to be allowed to use the euro.
• Global Economic Crisis and US Security This situation is almost similar to a terrorism attack, meaning the security of the United States has been affected greatly by the global economic crisis.
• Greece Economic Crisis Effect on the Rest of the World The cause of the economic crisis is due to the continuous extensive spending by the government resulting to rise of the nation’s debt.
• Eurozone Economic Crisis and Global Business Furthermore, the report posits that the adverse effects of the crisis in the Eurozone will reverberate to other parts of the world.
• Reckless Lending as a Cause of the Current Economic Crisis This is supported by the fact that the reckless lending of the huge amount of finances in the subprime markets led to financial shocks in the European markets.
• Consumerism and Economic Crisis The world has barely recovered from the effects of the global financial crisis of 2008 and yet Europe is slowly gliding to a similar economic downturn.
• Greece’s Economical Crisis Throughout the discussion, the paper will highlight the main economical problems faced by Greece, the major causes of economical crisis, how the current economical crisis is affecting other European countries, and the measures that Greek’s […]
• The Return of Depression Economics and the Crisis of 2008 As a matter of fact, the global financial crisis is still playing out and that is why this has been explained in an easy to understand language that can not present a problem to anybody.
• Economic Policies Matters of the Crisis of 1970s The economic downturn of the 1970s added to momentous changes in the institutional structures of the U.S.economic system. One of the major developments in economic theory during the economic crisis in 1970s was the emergence […]
• State Power and Economic Crisis The power of the state as reflected in the political system is related to the economic development of most countries. The government can provide subsidies to lower the costs of production in order to reduce […]
• The Current Economic Crisis and Lessons for Economic Theory Stiglitz presents a systematic analysis of the global economic crisis in which he reveals the cause, the reality and the aftermath of the economic crisis. The historical perspective of the global recession informs the failures […]
• The Role of Federal Reserve in the Economic Crisis in 2007 In general, the Federal Reserve maintains the stability of the financial system and oversees the achievement of price within the financial sector. Moreover, the significance of the oversight of the Congress in the functioning of […]
• The Worst Economic Crisis in the U.S. The freezing of the economy is attributable to the shrinking of profits as well as collapse of several companies that had managed to employ thousands of employees.
• The European Economic Crisis The first mistake is the adoption of a single currency, a move that was taken in the recent times, with no economic policy infrastructure in place that is vital for offering it protection.”Without arguing the […]
• Economic Crisis in Dubai The paper starts with the distinction between Dubai and Dubai world, and then proceeds to describe the nature of the liability crisis in Dubai.
• Economic Crisis in Operations Management
• Marketing and the Economic Crisis in Terms of Pareto Analysis
• The Economic Crisis and Its Impact on Stocks and Bonds
• Assess the Short Term Impact of the Economic Crisis on the League of Nations
• Bank Relationships and the Depth of the Current Economic Crisis
• Analyzing the Main Changes in New Consumer Buying Behavior During Economic Crisis
• Economic Crisis and the Real Estate Market
• Policy Responses to the Economic Crisis: Investing in Innovation for Long-Term Growth
• Corporate Social Responsibility and the Economic Crisis
• Active Labour Market Policy in Bulgaria in an Economic Crisis Context
• Impact of the Global Economic Crisis on Women, Girls and Gender Equality
• Accounting and Audit Versus Global Economic Crisis
• Air Passengers During the Economic Crisis: The Spanish Case
• Center for Public Relations and Clients in the Economic Crisis Mode
• Banking System, Financial Wealth, and Economic Crisis
• Africa and the Global Economic Crisis: Impacts, Policy Responses, and Political Economy
• Aspects Regarding the Current Economic Crisis and Its Influence on the Financial Sector
• Economic Crisis in Europe: Causes, Consequences and Responses
• Analysis of the Micro Perspective of Economic Crisis
• The Economic Crisis in Terms of Managerial Assessment
• Asian Economic Crisis and the Role of Japan
• History and Overview of the Economic Crisis
• America’s Economic Crisis and the Federal Reserve System
• Application of Corporate Governance in the Context of the Economic Crisis
• Applied Social Theory in the Context of the Economic Crisis and Ethical Problems
• Current European Economic Crisis
• Competition Policy Under Economic Crisis
• Can Legalizing Marijuana Pull a State Out of Economic Crisis?
• Economic Crisis: Financial Federalism in Italy
• Caribbean Governance the Impact of the Global Economic Crisis
• Competitive Market for Multiple Firms and Economic Crisis
• Between Berlusconi and Monti: Trade Unions and Economic Crisis in Italy
• Catastrophic Job Destruction During the Portuguese Economic Crisis
• Globalization and the Effect on the Economic Crisis
• Challenges for Light Industry During the Economic
• Global Economic Crisis and Poverty in Pakistan
• China’s Latent Economic Crisis and Potential Risks
• Impact of Global Economic Crisis on International Businesses
• Bringing Domestic Institutions Back Into Understanding Ireland’s Economic Crisis
• Convfinancial Distress and Happiness of Employees in Times of Economic Crisis
• Gender Perspectives and Gender Impacts on the Global Economic Crisis
• Financial and Economic Crisis in Eastern Europe
• Gender Wage Gaps and Economic Crisis in Greece
• Global Economy Under the Current Economic Crisis Effects
• Financial and World Economic Crisis: What Did Economists Contribute?
• Convergence in the Eurozone Countries Due to the Economic Crisis
• The Global Economic Crisis: Impact on India and Policy
• Economic Crisis: Income Inequality in Korea
• Central Bank Liquidity During the Financial Market and Economic Crisis
• Did Economic Inequality Cause the Economic Crisis?
• Crisis Communication Essay Ideas
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• Commerce Research Ideas
• Globalization Essay Topics
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• Process Management Questions
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Why Interest Rate Cuts Won’t Fix a Global Housing Affordability Crisis

Central bankers are lowering borrowing costs, but that won’t be a cure-all for a widespread lack of affordable housing.

By Jeanna Smialek

Jeanna Smialek, an economics journalist, reported from a major Federal Reserve conference at Jackson Hole in Wyoming and from Washington, D.C.

To Moira Gallagher, 38, buying a house in Anchorage would be a step toward financial stability for her growing family. But even with a six-figure household income and stable jobs, she and her husband have struggled to make a purchase.

High mortgage rates, limited housing supply and historically poor affordability have kept buying a home stubbornly out of reach for Ms. Gallagher, an economic researcher who is expecting her third child. Three- or four-bedroom homes in good school districts are both hard to come by and prohibitively expensive.

“It makes it hard to feel secure,” she said. “It affects everything.”

From Anchorage to Amsterdam , many developed and even emerging economies are confronting a similar problem: Housing supply is failing to meet demand, helping to push home prices to levels that are out of reach even for middle-income families.

Affordability problems have been exacerbated by high central bank interest rates, which officials across the globe have been using to tackle rapid inflation. Those policy rates trickle through financial markets to elevate mortgage rates — making it even more expensive for borrowers to buy a home and for builders to finance construction for new houses and apartments.

The second part of that equation is now poised to change. Central banks in many economies are lowering interest rates or preparing to do so imminently. The European Central Bank and Bank of England are already cutting borrowing costs, and the chair of the U.S. Federal Reserve signaled last week that it would start reductions in September.

But those rate cuts are unlikely to be a panacea for housing affordability.

While the shift in central bank stance is already translating into somewhat lower mortgage rates in many countries, borrowing costs are not expected to fall back to the levels that prevailed during the 2010s. Several economists said 30-year mortgage rates in the United States, for instance, could end up in the 5.5 to 6 percent range, down from their 7.5 percent peak last year but still up notably from the 4 percent that was normal before the pandemic.

Home Prices Jump in Developed World

How inflation-adjusted home prices are shaping up across advanced economies.

What Share of Income Does a Typical Home Cost?

Across metro areas in the United States, the cost of owning a typical home has been rising as a share of the local median income.

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Global Energy Crisis

How the energy crisis started, how global energy markets are impacting our daily life, and what governments are doing about it

• English English

What is the energy crisis?

Record prices, fuel shortages, rising poverty, slowing economies: the first energy crisis that's truly global.

Energy markets began to tighten in 2021 because of a variety of factors, including the extraordinarily rapid economic rebound following the pandemic. But the situation escalated dramatically into a full-blown global energy crisis following Russia’s invasion of Ukraine in February 2022. The price of natural gas reached record highs, and as a result so did electricity in some markets. Oil prices hit their highest level since 2008. 

Higher energy prices have contributed to painfully high inflation, pushed families into poverty, forced some factories to curtail output or even shut down, and slowed economic growth to the point that some countries are heading towards severe recession. Europe, whose gas supply is uniquely vulnerable because of its historic reliance on Russia, could face gas rationing this winter, while many emerging economies are seeing sharply higher energy import bills and fuel shortages. While today’s energy crisis shares some parallels with the oil shocks of the 1970s, there are important differences. Today’s crisis involves all fossil fuels, while the 1970s price shocks were largely limited to oil at a time when the global economy was much more dependent on oil, and less dependent on gas. The entire word economy is much more interlinked than it was 50 years ago, magnifying the impact. That’s why we can refer to this as the first truly global energy crisis.

Some gas-intensive manufacturing plants in Europe have curtailed output because they can’t afford to keep operating, while in China some have simply had their power supply cut. In emerging and developing economies, where the share of household budgets spent on energy and food is already large, higher energy bills have increased extreme poverty and set back progress towards achieving universal and affordable energy access. Even in advanced economies, rising prices have impacted vulnerable households and caused significant economic, social and political strains.

Climate policies have been blamed in some quarters for contributing to the recent run-up in energy prices, but there is no evidence. In fact, a greater supply of clean energy sources and technologies would have protected consumers and mitigated some of the upward pressure on fuel prices.

Russia's invasion of Ukraine drove European and Asian gas prices to record highs

Evolution of key regional natural gas prices, june 2021-october 2022, what is causing it, disrupted supply chains, bad weather, low investment, and then came russia's invasion of ukraine.

Energy prices have been rising since 2021 because of the rapid economic recovery, weather conditions in various parts of the world, maintenance work that had been delayed by the pandemic, and earlier decisions by oil and gas companies and exporting countries to reduce investments. Russia began withholding gas supplies to Europe in 2021, months ahead of its invasion of Ukraine. All that led to already tight supplies. Russia’s attack on Ukraine greatly exacerbated the situation . The United States and the EU imposed a series of sanctions on Russia and many European countries declared their intention to phase out Russian gas imports completely. Meanwhile, Russia has increasingly curtailed or even turned off its export pipelines. Russia is by far the world’s largest exporter of fossil fuels, and a particularly important supplier to Europe. In 2021, a quarter of all energy consumed in the EU came from Russia. As Europe sought to replace Russian gas, it bid up prices of US, Australian and Qatari ship-borne liquefied natural gas (LNG), raising prices and diverting supply away from traditional LNG customers in Asia. Because gas frequently sets the price at which electricity is sold, power prices soared as well. Both LNG producers and importers are rushing to build new infrastructure to increase how much LNG can be traded internationally, but these costly projects take years to come online. Oil prices also initially soared as international trade routes were reconfigured after the United States, many European countries and some of their Asian allies said they would no longer buy Russian oil. Some shippers have declined to carry Russian oil because of sanctions and insurance risk. Many large oil producers were unable to boost supply to meet rising demand – even with the incentive of sky-high prices – because of a lack of investment in recent years. While prices have come down from their peaks, the outlook is uncertain with new rounds of European sanctions on Russia kicking in later this year.

What is being done?

Pandemic hangovers and rising interest rates limit public responses, while some countries turn to coal.

Some governments are looking to cushion the blow for customers and businesses, either through direct assistance, or by limiting prices for consumers and then paying energy providers the difference. But with inflation in many countries well above target and budget deficits already large because of emergency spending during the Covid-19 pandemic, the scope for cushioning the impact is more limited than in early 2020. Rising inflation has triggered increases in short-term interest rates in many countries, slowing down economic growth. Europeans have rushed to increase gas imports from alternative producers such as Algeria, Norway and Azerbaijan. Several countries have resumed or expanded the use of coal for power generation, and some are extending the lives of nuclear plants slated for de-commissioning. EU members have also introduced gas storage obligations, and agreed on voluntary targets to cut gas and electricity demand by 15% this winter through efficiency measures, greater use of renewables, and support for efficiency improvements. To ensure adequate oil supplies, the IEA and its members responded with the two largest ever releases of emergency oil stocks. With two decisions – on 1 March 2022 and 1 April – the IEA coordinated the release of some 182 million barrels of emergency oil from public stocks or obligated stocks held by industry. Some IEA member countries independently released additional public stocks, resulting in a total of over 240 million barrels being released between March and November 2022.

The IEA has also published action plans to cut oil use with immediate impact, as well as plans for how Europe can reduce its reliance on Russian gas and how common citizens can reduce their energy consumption . The invasion has sparked a reappraisal of energy policies and priorities, calling into question the viability of decades of infrastructure and investment decisions, and profoundly reorientating international energy trade. Gas had been expected to play a key role in many countries as a lower-emitting "bridge" between dirtier fossil fuels and renewable energies. But today’s crisis has called into question natural gas’ reliability.

The current crisis could accelerate the rollout of cleaner, sustainable renewable energy such as wind and solar, just as the 1970s oil shocks spurred major advances in energy efficiency, as well as in nuclear, solar and wind power. The crisis has also underscored the importance of investing in robust gas and power network infrastructure to better integrate regional markets. The EU’s RePowerEU, presented in May 2022 and the United States’ Inflation Reduction Act , passed in August 2022, both contain major initiatives to develop energy efficiency and promote renewable energies. 

The global energy crisis can be a historic turning point

Energy saving tips

1. Heating: turn it down

Lower your thermostat by just 1°C to save around 7% of your heating energy and cut an average bill by EUR 50-70 a year. Always set your thermostat as low as feels comfortable, and wear warm clothes indoors. Use a programmable thermostat to set the temperature to 15°C while you sleep and 10°C when the house is unoccupied. This cuts up to 10% a year off heating bills. Try to only heat the room you’re in or the rooms you use regularly.

The same idea applies in hot weather. Turn off air-conditioning when you’re out. Set the overall temperature 1 °C warmer to cut bills by up to 10%. And only cool the room you’re in.

2. Boiler: adjust the settings

Default boiler settings are often higher than you need. Lower the hot water temperature to save 8% of your heating energy and cut EUR 100 off an average bill.  You may have to have the plumber come once if you have a complex modern combi boiler and can’t figure out the manual. Make sure you follow local recommendations or consult your boiler manual. Swap a bath for a shower to spend less energy heating water. And if you already use a shower, take a shorter one. Hot water tanks and pipes should be insulated to stop heat escaping. Clean wood- and pellet-burning heaters regularly with a wire brush to keep them working efficiently.

3. Warm air: seal it in

Close windows and doors, insulate pipes and draught-proof around windows, chimneys and other gaps to keep the warm air inside. Unless your home is very new, you will lose heat through draughty doors and windows, gaps in the floor, or up the chimney. Draught-proof these gaps with sealant or weather stripping to save up to EUR 100 a year. Install tight-fitting curtains or shades on windows to retain even more heat. Close fireplace and chimney openings (unless a fire is burning) to stop warm air escaping straight up the chimney. And if you never use your fireplace, seal the chimney to stop heat escaping.

4. Lightbulbs: swap them out

Replace old lightbulbs with new LED ones, and only keep on the lights you need. LED bulbs are more efficient than incandescent and halogen lights, they burn out less frequently, and save around EUR 10 a year per bulb. Check the energy label when buying bulbs, and aim for A (the most efficient) rather than G (the least efficient). The simplest and easiest way to save energy is to turn lights off when you leave a room.

5. Grab a bike

Walking or cycling are great alternatives to driving for short journeys, and they help save money, cut emissions and reduce congestion. If you can, leave your car at home for shorter journeys; especially if it’s a larger car. Share your ride with neighbours, friends and colleagues to save energy and money. You’ll also see big savings and health benefits if you travel by bike. Many governments also offer incentives for electric bikes.

6. Use public transport

For longer distances where walking or cycling is impractical, public transport still reduces energy use, congestion and air pollution. If you’re going on a longer trip, consider leaving your car at home and taking the train. Buy a season ticket to save money over time. Your workplace or local government might also offer incentives for travel passes. Plan your trip in advance to save on tickets and find the best route.

7. Drive smarter

Optimise your driving style to reduce fuel consumption: drive smoothly and at lower speeds on motorways, close windows at high speeds and make sure your tires are properly inflated. Try to take routes that avoid heavy traffic and turn off the engine when you’re not moving. Drive 10 km/h slower on motorways to cut your fuel bill by around EUR 60 per year. Driving steadily between 50-90 km/h can also save fuel. When driving faster than 80 km/h, it’s more efficient to use A/C, rather than opening your windows. And service your engine regularly to maintain energy efficiency.

Analysis and forecast to 2026

Fuel report — December 2023

Europe’s energy crisis: Understanding the drivers of the fall in electricity demand

Commentary — 09 May 2023

Where things stand in the global energy crisis one year on

Commentary — 23 February 2023

The global energy crisis pushed fossil fuel consumption subsidies to an all-time high in 2022

Commentary — 16 February 2023

Fossil Fuels Consumption Subsidies 2022

Policy report — February 2023

Background note on the natural gas supply-demand balance of the European Union in 2023

Report — February 2023

Analysis and forecast to 2025

Fuel report — December 2022

How to Avoid Gas Shortages in the European Union in 2023

A practical set of actions to close a potential supply-demand gap

Flagship report — December 2022

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Economics JIW - Tips for Choosing a Topic: Home

Choosing a topic.

Choosing a topic that can answer an economic research question is challenging.  Some tips:

•  Ripped from the headlines rarely makes a good economic paper.  You will be using data to determine causation or correlation.  Sometimes a similar event can be used.  Topics such as artificial intelligence may make a good policy paper but not a good economic one due to lack of data.
• Literature Review: Your JIW should use primarily scholarly sources.  Start with Econlit (the database of the American Economic Association).  Econlit indexes major journals, working papers, conference proceedings, dissertations, and chapters in critical books. It takes a long time for scholarly literature to appear.   Preprints are called working papers in economics and major ones are indexed in Econlit.  Y ou are your own research team and have limited time.  Many articles are written over a couple of years and involve many people gathering and cleaning the data. Some starting places: see https://libguides.princeton.edu/econliterature/gettingstarted
• Outside of finance and some macroeconomic data, most data will not have many points in time.  Data determines the methods used .   While a linear regression can be great for time series data, it is likely not what you will use for survey data.
• Longitudinal or panel study :  same group of individuals is interviewed at intervals over a period of time.  This can be very useful to observe changes over time. Keep in mind when using a long running longitudinal dataset that the panel generally is not adding new participants so may not reflect today’s demographics.
• Cross-sectional study :  data from particular subjects are obtained only once.  While you are studying different individuals each time, you are looking at individuals with similar demographic characteristics.  Demography is typically rebalanced to reflect the population.
• Summary statistics : aggregated counts of survey or administrative data.
• Typically around a 2 year time lag from the time the survey data is collected to the time of release.  The Economic Census and Census of Agriculture take about 4 years for all data to be released.  Many surveys never release the microdata.
• Very little subnational data is available and is often restricted when available.   State level macro data for the United States is more prevalent.  City level data is often a case study or only available for very large cities.
• Many micro-level datasets are restricted. It is not uncommon to wait a year before getting permission or denial to use the data.  Each organization has its own rules.
• Historical data in electronic format prior to 1950 is rare. Most governmental links provide current data only.
• What is measured changes over time .  Do not assume modern concepts were tracked in the past.  Definitions of indicators often change over time.
• Data cannot be made more frequent.  Many items are collected annually or even once a decade.  Major macroeconomic indicators such as GDP tend to be quarterly but some countries may only estimate annually. 
• What exists for one country may not exist for another country. Data is generally inconsistent across borders .
• Documentation is typically in the native language .
• Always look at the methodology. The methodology section is one of the most important parts of the paper. Someone should be able to replicate your work. Describe the dataset and its population. Describe how the data was subset, any filters used, and any adjustment methods. While you are likely not trying to publish in American Economic Review  or Journal of Finance , these are the gold standards.  See how they layout the articles and in particular the methodology and data sections.
• The basic question to ask when looking for economic data is " who cares about what i am studying ?"  Unfortunately, the answer may be no one. Ideally, look for an organization that is concerned with your research as part of its mission. Examples include the International Labor Organization or the Bureau of Labor Statistics focusing on labor research; the International Monetary Fund or the Board of Governors of the Federal Reserve System focusing on monetary and fiscal concerns; the World Bank focusing on development; and the World Health Organization focusing on health. This does not mean these organizations collect data on all topics related to that field.
• Find a topic for which there is literature and data but allows room to add a contribution.  Topics such as sports and music are popular due to personal interests but may not make good research topics due to lack of data and overuse.

   More tips:

• Data is typically not adjusted for inflation.  It is usually presented in current (nominal) currency.  This means the numbers as they originally appeared.  When data has been adjusted for inflation (constant or real), a base year such as 2020 or 1990 will be shown.  If a base year is not provided, then data is current and therefore not adjusted for inflation.  If given a choice, choose current dollars.  Data is often derived from different datasets and many will use different base years.  Adjust everything at the end.  It is easier than doing reverse math!
• While most datasets are consistent within the dataset for currency used such as all in US Dollars or Euro or Japanese Yen or each item in local currency, some will mix and match.  LCU is a common abbreviation meaning local currency units. Consider looking at percent changes rather than actual values.  If adjusting use the exchange rate for each period of time, not the latest one.
• Economic indicators may be either seasonally adjusted or not seasonally adjusted.  This is very common for employment and retail sales.   Unless something says it is seasonally adjusted, it is not.  Be consistent and note in methodology.

Librarians are here to help!  Librarians can help to devise a feasible topic, assist with the literature search, and choose appropriate data.  Your data may fall into multiple categories.  Think of the primary aspect of your topic in terms of first contact.  Do not email librarians individually.  If unsure who to contact either put all that apply on same email or email just one.  If that person is not the best, they will refer you.  

Bobray Bordelon Economics, Finance, & Data Librarian   [email protected]

Charissa Jefferson

Labor Librarian [email protected]

Mary Carter Finance and Operations Research Librarian [email protected]

Data workshops

• Environmental and energy data  (Bordelon), 9/23/2024  - 7:30-8:50 pm
• Health, Crime and other Socioeconomic Data  (Bordelon), 9/23/2024 and 10/02/2024 - 3-4:20 pm 
• Macroeconomics and trade data  (Bordelon), 9/25/2024 and 9/30/2024 - 3-4:20 pm
• Finance data  (Carter), 9/23/2024 and 9/25/2024 - 3-4:20 pm
• Labor and education data  (Jefferson), 9/23/2024 and 9/25/2024 - 3-4:20 pm

Workshops listed twice have the same content and are done as an opportunity to fit your schedule.  While you must attend at least one data workshop, it is wise to attend more than one.  If in a certificate program, with the exception of political economy which has to be incorporated into your JIW, other programs have different requirements which are typically for your senior year.  As an example, if in finance, if you choose not to explore a finance topic this year you will still need to incorporate in your senior theses so try and attend a finance workshop in addition to your topical workshop for your JIW since these are intended to help you for your time at Princeton and both the JIW but also the senior thesis.

• Last Updated: Aug 28, 2024 9:32 AM
• URL: https://libguides.princeton.edu/ECOJIWTopics

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• What to make of America’s topsy-turvy economy

Don’t panic just yet

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D on’t blame American investors for feeling seasick. The past few weeks have brought a swirl of contradictory economic news: stock prices sank and then rebounded; jobs figures were weaker than predicted but retail sales were much stronger. Chatter about an immediate emergency interest-rate cut by the Federal Reserve built up and then died down. After the exuberance of the first half of 2024, economy-watchers are anxiously poring over each new data release. The utterances of Jerome Powell, the Fed’s chairman, at the Jackson Hole gathering of central bankers on August 23rd, after we published this, will be examined even more closely than usual.

What is going on? Economic data can often be volatile around turning-points, and several oddities are obscuring the picture. Take a step back, though, and America’s economy seems poised for a gradual slowdown, not a crash.

The most marked area of weakness so far has been the labour market. Unemployment jumped to 4.3% in July, a big enough leap to invoke the Sahm Rule, an indicator based on the rise in joblessness that has identified every American recession since 1960 (but which has a patchier record in other countries). Another rule, which uses both unemployment and job-vacancy figures, implies that a recession might have begun as early as March. Markets nervously await the next jobs release on September 6th.

Dig into the data, though, and it looks as if this weakness may be overstated. Much of the rise in unemployment in the latest figures came from temporary lay-offs, which tend to be volatile. America’s recent surge in immigration might also be influencing the data; new migrants are often not in work until a little after their initial arrival. Some of the rise in unemployment, therefore, may be short-term.

History may also be muddling things. Investors may be so jittery because they have over-learned the lessons of the previous two big recessions: during the global financial crisis of 2007-09 and the covid crash. Both of those were faster and deeper than a typical downswing, amplified as they were by a fragile banking system and a pandemic, respectively. They may not be the best guide to what to expect today.

Conventional slowdowns are often stop-start and gradual. A better guide than 2008 or 2020 may be the more subdued environment of the 1990s and early 2000s. Another more recent precedent might be mid-2019, when the Fed smoothed over a growth hiccup by unwinding some previous interest-rate rises.

How, then, to describe the current state of the economy? It is certainly slowing, and likely to slow further. A peculiar feature of this cycle has been that tight monetary policy and loose fiscal policy have pulled in opposite directions. Thus far, the tug-of-war has left the economy expanding at a rapid clip; gdp growth was 3.1% over the past year. But a pace that speedy cannot be sustained for ever: most estimates put America’s long-run potential growth rate at closer to 1.5-2% a year.

A good measure of the overall thrust of the latest economic data is the Atlanta Fed’s “nowcast” of GDP growth, which draws on a wide swathe of data. That has fallen over the past two weeks—but to a still healthy 2%. Conditions could yet deteriorate further if the lagged effect of high interest rates starts to bite. Some households are already feeling a squeeze: the share of credit-card bills left unpaid has risen to a 13-year high.

It should help, though, that the economy is far better situated today than in 2019 in one crucial respect: there is plenty of room for the Fed to ease. Investors expect interest rates to fall from their current range of 5.25-5.50% by more than two percentage points in the next year. Those cuts are already reflected in lower long-term bond yields. But interest rates could comfortably fall further and faster if worse news on the economy demanded it. By contrast, a fall of two percentage points in 2019 would have returned rates all the way to zero.

How much of the fuel left in the Fed’s tank will be needed? At Jackson Hole last year, Mr Powell signalled his determination to raise rates until inflation was back at its 2% target. Today inflation is nearly back to where it needs to be and the growth outlook is shakier. An interest-rate cut of a quarter of a percentage point in September seems almost certain.

Powell, so confusing

But central bankers should beware of overreacting. Financial markets are still pricing in a one-in-three chance of a jumbo rate cut of half a percentage point. Unless further bad news arrives, such a sharp move could go too far. The Fed faces danger from two sides: if it cuts too much, it could risk another surge in inflation; if it cuts too little, growth could falter more. Mr Powell has made admirable progress fighting inflation so far. His reward is that he now faces a new enemy, even as the old one is not yet fully defeated. ■

Explore more

This article appeared in the Leaders section of the print edition under the headline “The topsy-turvy economy”

Leaders August 24th 2024

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