Abstract

While conventional theories posit that stronger institutions buffer economies against crises, the COVID-19 pandemic presents a puzzle: despite substantial variation in institutional capacity, the global economic contraction of 2020 was both severe and widespread. Motivated by this puzzle, we constructed a global panel dataset from 2014 to 2024 and employed two-way fixed-effect estimation with Driscoll–Kraay robust standard errors to examine the differential role of state capacity across COVID-19 crisis phases. The results confirm that the shock caused by the pandemic reduced GDP per capita growth across countries, with the Americas experiencing disproportionately deeper contractions and stronger rebounds relative to other regions. Most importantly, the findings reveal a temporal asymmetry in institutional effectiveness: our constructed composite resource-based measure of state capacity does not mitigate the initial economic contraction but exerts a positive, statistically significant effect on post-pandemic recovery. Unsurprisingly, model re-estimation with the conventional perception-based measure of state capacity fails to replicate this dynamic, underscoring the importance of measurement strategy in institutional research. These results challenge the assumption that institutions uniformly buffer shocks, demonstrating instead that state capacity is more consequential for recovery than crisis prevention.

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