Pandemics Depress the Economy,

Public Health Interventions Do Not:

Evidence from the 1918 Flu
By Sergio Correia, Stephan Luck and Emil Verner
Draft from March 30, 2020

Diogo Gouveia - 1901213939

Michiel Merchiers - 1901213932
Samuel Yazo - 1901213940

April 29, 2020

Table of Content
1. Introduction
2. Data
3. Empirical Results
3.1. Economic Effects of the 1918 Flu Pandemic
3.2. Economic Effects of Non-pharmaceutical Public
Interventions (NPIs)
4. Conclusion
5. Appendix
1. Introduction
Research Question

(1) What are the real economic effects of a pandemic?

(2) How does the local public health response affect

the economic severity of the pandemic?
1. Introduction
Analysis Approach

(1) Examines the severity of the pandemic

• Exploits the channels through which the outbreak impacts
the economic activity.

(2) Studies the impact of Non-Pharmaceutical Interventions (NPIs)

• Compare cities by the speed and duration of NPIs
implemented.
1. Introduction
Main Results

(1) Areas that were more severely affected by the 1918 Flu
Pandemic faced a sharp and persistent decline in real economic
activity.

(2) Cities that implemented early and forceful NPIs experience a

relative increase in real economic activity after the pandemic.
1. Introduction
Literature Review
(1) The short-run economic effect
• Garret (2008) provides evidence from newspaper reports that the pandemic
caused severe disruption to businesses.

(2) The interaction between economic decisions and the epidemic

• Eichenbaum et al. (2020) suggest that containment policies require lower
economic activity.

(3) The long-term impact of the 1918 pandemic the south american way
• Guimbeau et al. (2019), find persistent negative effects of the 1918 flu on
long-term health and productivity in São Paulo, Brazil.
2. Data
2. Data
Data Sources
This paper uses data at both the state and city level:

(1) Influenza Mortality

• Center for Disease Control’s Mortality Statistic tables.

(2) Measures of real economic activity

• Census Bureau’s Statistical Abstract of the US;
• Historical Statistics on US Banking by Mark D. Flood
• Markel et al. (2007).
3. Empirical Results
3. Empirical Results
Overview
3.1. Economic Effects of the 1918 Flu
Pandemic
3.1. Economic Effects of the 1918 Flu Pandemic

• The banking system has a moderating role.

Demand Side Supply Side

Interpersonal contact

Durable goods Decreased labor supply

Uncertainty
3.1. Economic Effects of the 1918 Flu Pandemic

Empirical Model
3.1. Economic Effects of the 1918 Flu Pandemic

Effect on Manufacturing

• Influenza exposure depresses the supply-side of an economy.

3.1. Economic Effects of the 1918 Flu Pandemic

Effect on Bank Assets/Loans

• Bank Assets move parallel with Mortality.

3.1. Economic Effects of the 1918 Flu Pandemic

Effect on Durable Goods

• Pandemic exposure forces the demand for durable goods to gradually decline.
3.2. Economic Effects of Non-pharmaceutical
Public Interventions (NPIs)
3.2. Economic Effects of Non-
pharmaceutical Public Interventions (NPIs)

Negative
Positive Effects
Effects
NPI’s can mitigate NPI’s constrain social
the most severe interactions while
economic they are, depressing
disruptions. economic activity.
3.2. Economic Effects of Non-
pharmaceutical Public Interventions (NPIs)
Empirical Model
3.2. Economic Effects of Non-pharmaceutical
Public Interventions (NPIs)
Effect on Manufacturing
• There is an increase in manufacturing employment between 1914 and 1919 in
higher values of both NPI measures. The estimates are statistically significant for
all years, and the effect persists through 1923.
 3.2. Economic Effects of Non-pharmaceutical
Public Interventions (NPIs)
Effect on Manufacturing
• A one standard deviation increase in the speed of NPI implementation increases
output by around 5%. Likewise, a one standard deviation increase in the days of of
NPIs in place increases output by approximately 7%.
 3.2. Economic Effects of Non-pharmaceutical
Public Interventions (NPIs)
Effect on Bank Assets
• Both a quicker reaction and a longer implementation of NPI are associated with
more growth in local national banking assets from early fall 1918 to 1919.
4. Conclusion
4. Conclusion
Key Insights

(1) Pandemics are highly disruptive for economic activity

• Depresses through both supply and demand-side effects.

(2) NPIs can reduce mortality and be economically beneficial

• Economy performed better in areas with more aggresive
NPIs after the pandemic
4. Conclusion
Caveats

(1) Limited data

• Data on manufacturing activity is not available in all years.
• 30 states and 66 cities on influenza mortality, and 43 cities.

(2) Historical context

• End of WW1 in 1918 impacted the economic environment at that time.

(3) Limit of external validity

• 1918 Flu was more deadly than COVID-19.
• Different structure of the economy today.
Q&A
5. Appendix
5. Appendix
5. Appendix
5. Appendix