The long shadow of epidemics1

Abstract

Mortality shocks associated with pandemics differentially affect economies. In advanced countries, where human capital is a key input in aggregate production, an adverse mortality shock not only results in loss of lives, but also results in loss of productive assets (intangible human capital). In poorer economies, one the other hand, where production depends more on tangible inputs like land and physical capital, the effect of mortality shocks is muted: loss of lives is not necessarily accompanied by loss of assets. At the same time, weak health infrastructure, high population density and limited flexibility in production organization in poorer countries imply faster spread of the disease and, therefore, a shock of greater magnitude. These two counteracting mechanisms imply a non-monotonic relationship between disease and growth dynamics. We develop a model of endogenous growth to understand this relationship and highlight the short- and long-term effects of the Covid-19 epidemic shock. © 2022 selection and editorial matter, Rajib Bhattacharyya, Ananya Ghosh Dastidar and Soumyen Sikdar;individual chapters, the contributors.