An analysis of the social distancing effects on global economy and international finance using causal loop diagrams

This paper investigates the COVID-19 outbreak, explains the policies adopted by governments, and examines the side effects of social distancing on the global economy and international finance. Causal loop diagrams are used to explain the interlinkages amongst the important variables and show the outbreak follows the pattern of a reinforcing loop. Governments strive to balance this loop by adopting a set of policies, of which social distancing has left a tremendous negative impact on the global economy. The side effects of this policy are highlighted in three categories: short-term, midterm, and long-term by explaining the reinforcing loops that require time to get stimulated. The short-term loops result in demand and supply shocks in any economy, and if this policy stays effective for a longer period, the midterm loops get activated, leading to corporate and government debt crises. When the pandemic duration extends, the long-term side effects appear with a deflationary recession and a banking crisis. The quickness of moving from one category to another in an economy depends on the financial strength of firms and their government. Finally, this paper anticipates some changes in future business caused by the pandemic, which can bring insights for managers.