Pandemics Depress the Economy, Public Health Interventions Do Not: Evidence from the 1918 Flu by Sergio Correia, Stephan Luck, Emil Verner publicado por SSRN (6/2020).
“Do non-pharmaceutical interventions (NPIs) aimed at reducing mortality during a pandemic necessarily have adverse economic effects? We use variation in the timing and intensity of NPIs across U.S. cities during the 1918 Flu Pandemic to examine their economic impact. While the pandemic itself was associated with economic disruptions in the short run, we find these disruptions were similar across cities with strict and lenient NPIs. In the medium run, we find suggestive evidence that, if anything, NPIs are associated with better economic outcomes. Our findings indicate that NPIs can reduce disease transmission without necessarily further depressing economic activity.
Do non-pharmaceutical interventions (NPIs) such as social distancing have economic costs, or can public health measures intended to contain the spread of a pandemic also reduce its economic severity? The outbreak of the COVID-19 pandemic has sparked urgent questions about the impact of pandemics and the associated public health responses on the real economy.
In this paper, we examine the economic effects of non-pharmaceutical interventions during the largest influenza pandemic in U.S. history, the 1918 Flu Pandemic. In our empirical analysis, we exploit variation in the speed and intensity of the implementation of NPIs across U.S. cities during the fall of 1918. NPIs implemented in 1918—although less extensive—resemble policies used to reduce the spread of COVID19, including school, theater, and church closures, public gathering bans, quarantine of suspected cases, and restricted business hours.
We start by studying the impact of NPIs on mortality. Consistent with existing evidence from the epidemiology literature (Markel et al., 2007; Hatchett et al., 2007), we find that NPIs achieved substantial reductions in peak mortality, of about 45%, thereby flattening the infection curve. We also find evidence that cities that intervened both early and aggressively experienced a modest reduction in cumulative excess mortality of about 20%. Thus, NPIs were successful in slowing the rate of disease transmission and, to a lesser extent, cumulative infection rates, potentially by mitigating epidemic overshoot (Bootsma and Ferguson, 2007).
Our main analysis examines the impact of NPIs on economic activity in U.S. cities in the short and medium-run. In theory, the economic effects of NPIs could be either positive or negative. All else equal, NPIs constrain social interactions and thus economic activity that relies on such interactions. However, economic activity in a pandemic is also reduced in absence of such measures, as households reduce consumption and labor supply to lower the risk of becoming infected, and firms cut investment in response to increased uncertainty. Moreover, while the direct effect of NPIs is to lower economic activity, they also mitigate the impact of the original shock: the pandemic itself. By containing the pandemic, NPIs can thus also mitigate the pandemic-related economic disruptions…”
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