Pandemics Depress the Economy, Public Health Interventions Do Not: Evidence from the 1918 Flu

49 Pages Posted: 26 Mar 2020 Last revised: 13 Apr 2020

See all articles by Sergio Correia

Sergio Correia

Board of Governors of the Federal Reserve System

Stephan Luck

Federal Reserve Bank of New York

Emil Verner

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Date Written: March 30, 2020

Abstract

What are the economic consequences of an influenza pandemic? And given the pandemic, what are the economic costs and benefits of non-pharmaceutical interventions (NPI)? Using geographic variation in mortality during the 1918 Flu Pandemic in the U.S., we find that more exposed areas experience a sharp and persistent decline in economic activity. The estimates imply that the pandemic reduced manufacturing output by 18%. The downturn is driven by both supply and demand-side channels. Further, building on findings from the epidemiology literature establishing that NPIs decrease influenza mortality, we use variation in the timing and intensity of NPIs across U.S. cities to study their economic effects. We find that cities that intervened earlier and more aggressively do not perform worse and, if anything, grow faster after the pandemic is over. Our findings thus indicate that NPIs not only lower mortality; they may also mitigate the adverse economic consequences of a pandemic.

Keywords: 1918 Flu Pandemic, non-pharmaceutical interventions (NPI), real economy

JEL Classification: E32, I10, I18, H1

Suggested Citation

Correia, Sergio and Luck, Stephan and Verner, Emil, Pandemics Depress the Economy, Public Health Interventions Do Not: Evidence from the 1918 Flu (March 30, 2020). Available at SSRN: https://ssrn.com/abstract=3561560 or http://dx.doi.org/10.2139/ssrn.3561560

Sergio Correia

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Stephan Luck

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Emil Verner (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

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