| Abstract: |
This paper examines two related questions: what effects do infectious diseases
exert on growth and development, and are they quantitatively important? We
present evidence on the effect of health and infectious diseases on economic
development using Hansen’s (2000) endogenous threshold methodology. Taking
into account various proxies for infectious diseases as potential threshold
variables we show that countries are clustered in regimes that obey different
growth paths and thus provide direct evidence of threshold effects. Motivated
by this evidence we propose an epidemiological overlapping generations model
where the transmission and incidence of an infectious disease depend upon
economic incentives and rational behavior. The economic cost of the disease
comes from its effect on mortality (infected individuals can die prematurely)
and morbidity (lower productivity and/or lower flow of utility from a given
consumption bundle). Our main theoretical finding is that if infectious
diseases are particularly virulent or debilitating, growth- or
development-traps are possible. Numerical results from a calibrated version of
the model show that threshold effects of diseases are quantitatively important
and in particular, significant health interventions are required to propel
disease-afflicted countries to a high-growth trajectory. |