Infectious Diseases, Human Capital and Economic Growth

Liu, L ORCID: 0000-0002-8222-7625 and Goenka, Aditya (2020) Infectious Diseases, Human Capital and Economic Growth. Economic Theory, 70 (1). pp. 1-47.

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Abstract

Stylized facts show there is a clustering of countries in three balanced growth paths characterized by differing income/growth, human capital and incidence of infectious diseases. To explain this, we develop a dynamic general equilibrium model incorporating SIS epidemiology dynamics, where households choose how much to invest in human and physical capital, as well as in controlling the risk of infection. In the decentralized economy, households do not internalize the externality of controlling infection. There are multiple balanced growth paths where the endogenous prevalence of the disease determines whether human capital is accumulated or not, i.e., whether there is sustained economic growth or a poverty trap. We characterize the optimal public health policy that internalizes the disease externality and the subsidy that decentralizes it. Perversely, for countries in a poverty trap and most afflicted with diseases, the optimal subsidy is lower than for growing economies. We also study the quantitative effects of better control of diseases, and of increasing life expectancy on countries in a poverty trap.

Item Type:	Article
Uncontrolled Keywords:	Endogenous growth, Infectious diseases, Epidemiology, Poverty trap, Public health policy, Human capital
Divisions:	Faculty of Humanities and Social Sciences > School of Management
Depositing User:	Symplectic Admin
Date Deposited:	11 Jul 2022 14:40
Last Modified:	18 Jan 2023 20:56
DOI:	10.1007/s00199-019-01214-7
Related URLs:	Author Publisher
URI:	https://livrepository.liverpool.ac.uk/id/eprint/3158204

Available Versions of this Item

• Infectious Diseases, Human Capital and Economic Growth. (deposited 24 Jun 2019 13:08)
  • Infectious Diseases, Human Capital and Economic Growth. (deposited 11 Jul 2022 14:40) [Currently Displayed]