Globalization and Pandemics

ABSTRACT

We provide theory and evidence on the relationship between global-ization and pandemics. Business travel facilitates trade and travel leads to human interactions that transmit disease. Trade-motivated travel generates an epidemiological externality across countries. If infections lead to deaths, or reduce individual labor supply, we establish a general equilibrium social distancing effect, whereby increases in relative prices in unhealthy countries reduce travel to those countries. If agents internalize the threat of infection, we show that their behavioral responses lead to a reduction in travel that is larger for higher-trade-cost locations, which initially reduces the ratio of trade to output. (JEL D91, F14, F60, I12, N30, N70, Z31)