Longer-run Economic Consequences of Pandemics

30 03 2020

Our colleagues who work in the field of economic history have started to publish research that applies historical data in trying to think about the likely macro-economic impact of coronavirus (see paper details below). Historically-informed finance practitioners such as the excellent Jamie Catherwood (aka Investor Amnesia) have also been using the past as a guide. I see all of these efforts as entirely complementary to the ongoing efforts of business historians around the world to study how firms responded to similar pandemics in the past and thus provide actionable advice to managers who are currently trying to cope with the crisis.


Longer-Run Economic Consequences of Pandemics

Òscar Jordà, Federal Reserve Bank of San Francisco and University of California, Davis

Sanjay R. Singh, University of California, Davis

Alan M. Taylor, University of California, Davis

Federal Reserve Bank of San Francisco Working Paper2020-09

Paper Abstract:

How do major pandemics affect economic activity in the medium to longer term?
Is it consistent with what economic theory prescribes? Since these are rare events,
historical evidence over many centuries is required. We study rates of return on assets
using a dataset stretching back to the 14th century, focusing on 12 major pandemics
where more than 100,000 people died. In addition, we include major armed conflicts
resulting in a similarly large death toll. Significant macroeconomic after-effects of the
pandemics persist for about 40 years, with real rates of return substantially depressed.
In contrast, we find that wars have no such effect, indeed the opposite. This is consistent
with the destruction of capital that happens in wars, but not in pandemics. Using
more sparse data, we find real wages somewhat elevated following pandemics. The
findings are consistent with pandemics inducing labor scarcity and/or a shift to greater
precautionary savings.



Full paper available here.



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