Divided We Fall: International Health and Trade Coordination During a Pandemic

67 Pages Posted: 1 Dec 2020 Last revised: 7 Jul 2022

See all articles by Viral V. Acharya

Viral V. Acharya

Professor; New York University - Leonard N. Stern School of Business; New York University (NYU) - Department of Finance; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); National Bureau of Economic Research (NBER)

Zhengyang Jiang

Kellogg School of Management - Department of Finance; National Bureau of Economic Research (NBER)

Robert Richmond

New York University (NYU) - Department of Finance

Ernst-Ludwig von Thadden

Universitaet Mannheim; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Multiple version iconThere are 2 versions of this paper

Date Written: July 7, 2022

Abstract

We analyze the role of international trade and health coordination during a pandemic by developing a two-economy, two-good trade model integrated into a micro-founded SIR model of infection dynamics. Governments can adopt containment policies to suppress infection spread domestically, and levy import tariffs to prevent infection coming from abroad. The efficient, i.e., coordinated, risk-sharing arrangement dynamically adjusts both policy instruments to share infection and economic risks internationally. However, in the Nash equilibrium of uncoordinated governments with national mandates, trade policies robustly feature inefficiently high tariffs that peak with the pandemic in the foreign economy. This distorts terms-of-trade dynamics and magnifies the welfare costs during a pandemic, featuring lower levels of consumption and production, as well as smaller gains via diversification of infection curves across economies.

Keywords: International Trade, Tariffs, SIR model, COVID-19, Health policies, Terms of trade

JEL Classification: F13, F42, F44

Suggested Citation

Acharya, Viral V. and Acharya, Viral V. and Jiang, Zhengyang and Richmond, Robert and von Thadden, Ernst-Ludwig, Divided We Fall: International Health and Trade Coordination During a Pandemic (July 7, 2022). NYU Stern School of Business Research Paper Series, Available at SSRN: https://ssrn.com/abstract=3739991 or http://dx.doi.org/10.2139/ssrn.3739991

Viral V. Acharya

Professor ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States
2129980354 (Phone)
2129954256 (Fax)

HOME PAGE: http://www.stern.nyu.edu/~vacharya

New York University - Leonard N. Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States
2129980354 (Phone)
2129954256 (Fax)

HOME PAGE: http://www.stern.nyu.edu/~vacharya

New York University (NYU) - Department of Finance

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Zhengyang Jiang

Kellogg School of Management - Department of Finance ( email )

Evanston, IL 60208
United States

HOME PAGE: http://sites.google.com/site/jayzedwye/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Robert Richmond (Contact Author)

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

Ernst-Ludwig Von Thadden

Universitaet Mannheim ( email )

Department of Economics
Mannheim, 68131
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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