Evaluating the economic effects of the Ebola Virus Disease in Liberia using a Synthetic Control Method

Countries in the Global South are often vulnerable to the outbreak of infectious disease, which impedes economic growth and compromises the economy on an aggregate level. The 2014 Ebola epidemic in West Africa had an adverse correlation on the economies of the affected countries, leading to a scale down in Liberia productive sectors. There are many pieces of literature assessing the effect of the Ebola virus epidemic. Still, there is no general consensus of its effect on the macroeconomy, especially in Liberia. As such, most of these literature findings relied on descriptive characterization and predictions of the Ebola. Nevertheless, this research attempts to contribute to these existing studies by evaluating the macroeconomic effects of the Ebola epidemic on the Liberian economy. Hence, this research uses the synthetic control method (SCM) to assess the Ebola epidemic's impact on the selected macroeconomic outcome variables of interests. The SCM allows us to construct the synthetic counterfactuals by assigning a weight from a donor pool of thirty-nine (39) African countries within the treatment period from 2004-2018. These weighted average forms the synthetic control and compared it to Liberia, thus depicting each outcome variable's trends that reproduces similar characteristics to Liberia before the outbreak of the Ebola epidemic. For effect on each outcome variable, this study finds that the Ebola crisis led to an increase in the inflation rate by 18% and statistically significance at 5%. Due to the Ebola epidemic, Liberia's unemployment rate increased by 0.8%, while GDP declined by negative 0.9%, and GDP growth by negative 4% over time. The study finds that the estimated treatment effect of EVD compromised the fight against poverty as it contributed to a declined in per capita income between $40-$140 and statistically insignificant at 10%. As a result, it can be deduce that there is no economic convergence in per capita incomes because both the treated unit and control group are developing countries, and none could converge in per capita values. Hence, this research overall findings suggests that though the Ebola epidemic negatively impacted these macroeconomic variables, the impact was not substantial as it has been believed.