Modern Pandemics: Recession and Recovery

Board of Governors of the Federal Reserve System
International Finance Discussion Papers
Number 1295
August 2020
Modern Pandemics: Recession and Recovery
Chang Ma, John Rogers, and Sili Zhou
Please cite this paper as:

Ma, Chang, John Rogers, and Sili Zhou (2020). “Modern Pandemics: Recession and Re-
covery,” International Finance Discussion Papers 1295. Washington: Board of Governors of
the Federal Reserve System, https://doi.org/10.17016/IFDP.2020.1295.
NOTE: International Finance Discussion Papers (IFDPs) are preliminary materials circulated to stimu-
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Social Science Research Network electronic library at www.ssrn.com.
Modern Pandemics: Recession and Recovery∗
Chang Ma† John Rogers‡ Sili Zhou§
First Draft: March 2020

This Version: June 2020
Abstract
We examine the immediate effects and bounce-back from six modern health crises:
1968 Flu, SARS (2003), H1N1 (2009), MERS (2012), Ebola (2014), and Zika (2016).
Time-series models for a large cross-section of countries indicate that real GDP growth
falls by around three percentage points in affected countries relative to unaffected
countries in the year of the outbreak. Bounce-back in GDP growth is rapid, but output
is still below pre-shock level five years later. Unemployment for less educated workers
is higher and exhibits more persistence, and there is significantly greater persistence
in female unemployment than male. The negative effects on GDP and unemployment
are felt less in countries with larger first-year responses in government spending, es-
pecially on health care. Affected countries’ consumption declines, investment drops
sharply, and international trade plummets. Bounce-back in these expenditure cate-
gories is also rapid but not by enough to restore pre-shock trends. Furthermore, indi-
rect effects on own-country GDP from affected trading partners are significant for both
the initial GDP decline and the positive bounce back. We discuss why our estimates
are a lower bound for the global economic effects of COVID-19 and compare contours
of the current pandemic to the historical episodes.
Keywords: Health crises; COVID-19; Output loss; Unemployment; Trade net-
work; Fiscal policy
JEL Classification: I10, E60, F40
∗ We thank Valerie Cerra, Neil Ericsson, Huasheng Gao, Nils Gornemann, Yi Huang, Esa Jokivuolle,
Hidehiko Matsumoto, Jun Qian, Shangjin Wei, Jonathan Wright, and seminar participants at the Bank of
Finland (BOFIT), Federal Reserve Board, Fudan University, IMF and SUFE for helpful comments. Lexie
Banham, Caitlin Dutta, and Jiqiao Gao provided superb research assistance. The views in this paper are
solely the responsibility of the authors and should not be interpreted as reflecting the views of the Board of
Governors of the Federal Reserve System or of any other person associated with the Federal Reserve System.
† Fanhai International School of Finance, Fudan University ([email protected]).
‡ International Finance Division, Federal Reserve Board ([email protected]).
§ Fanhai International School of Finance, Fudan University ([email protected]).
“We’ve never had a coronavirus pandemic infection like this. It may have
happened centuries ago, but we didn’t see it.”
— Michael Osterholm, PhD, MPH, Director of the Center for Infectious
Disease Research and Policy, University of Minnesota, 29 May 2020
1 Introduction
Epidemiologists, economists, and policymakers continue to devote considerable attention
to forecasting the human ravages and economic toll of the coronavirus COVID-19. As
worldwide deaths attributed to the pandemic approach half a million, prospects for eco-
nomic activity and financial markets are equally funereal. Although economists have doc-
umented that many financial and political crises are associated with severe recessions (see
Cerra and Saxena (2008), Reinhart and Rogoff (2009) and Jordà et al. (2013)), until very
recently little attention was paid to global health crises.1 This changed dramatically with
the outbreak of COVID-19, after which many new health crises papers have been written in
a short period of time. Most papers have focused on the current crisis, its economic impact,
and policy responses.2 The accuracy and usefulness of those analyses will be proven in
time, of course, as at this early stage we still know little about the general features of a
pandemic like COVID-19 and how to deal with it.
This paper makes progress understanding COVID-19 by systematically documenting
the global impact of previous pandemics and epidemics in a large set of countries. We
analyze six episodes identified by global health experts in Jamison et al. (2017), beginning
with the 1968 Flu up to Zika in 2016. We focus on estimating the effect of these health
crises on GDP growth and unemployment, both in the onset year of the crisis as well as the
dynamic effects over time. The latter gives us insights into how quickly countries recover
economically. In that vein, we examine whether or not economic recovery is aided by fiscal
policy. We also examine the effects of the health crises on the components of GDP and on
international trade. With the latter, we examine spillover or network effects, asking for
example, how much is an individual country’s economy affected by the fact that its trading
partner suffered from the health crisis?
1 Exceptions include Jamison et al. (2013), Fan et al. (2016), Jamison et al. (2017) and references within.
2 Again, with exceptions like Jordà et al. (2020) and Barro et al. (2020), who examine past crises.
1
We primarily use local projections impulse responses as in Jordà (2005). This gives us
a flexible and widely used approach to estimate the effect of a health crisis shock on GDP
growth or unemployment of affected countries relative to unaffected countries, including
the dynamic effects. Identification relies on the dates that health organizations officially
declared a crisis. We also make use of panel regressions, which facilitate robustness checks
of our baseline results, including addressing concerns about endogeneity, which we do in
a seemingly unrelated regressions framework. We allow for cross-sectional dependence
by correcting standard errors around all of our estimates using the method of Driscoll and
Kraay (1998).3
We find that the economic impact of the average past health crisis is sizeable. Real GDP
falls by around three percentage points and unemployment rises by nearly one percentage
point, in affected countries relative to unaffected countries, in the year the outbreak is
officially declared. These effects are larger for affected countries that experience more
severe health crisis shocks. Moreover, these effects are very persistent. Although GDP
growth rebounds quickly in one year, output remains below its pre-shock level five years
later. For unemployment, it takes two years for the effect to vanish. Our findings on the
effect of health crises are consistent with previous analyses of financial crises, in particular
with respect to the persistence of the shock’s effects, as in Cerra and Saxena (2008), for
example. As a basis for understanding the magnitude and persistence of our health crisis
shocks, we show that they are similar to those from systemic banking crisis shocks, as
identified by Laeven and Valencia (2013).
Furthermore, we document heterogeneity in the effects of health crises. First, we show
that there is a differential effect on workers based on education and gender. For example,
less educated workers experience larger unemployment than those with higher levels of
education. In addition, the persistence of female unemployment is significantly greater than
of male unemployment. Second, the services and industry sectors are relatively hard hit,
in terms of both GDP growth and unemployment, while agriculture is largely unaffected.
Third, there is notable cross-country heterogeneity. For example, affected countries in the
World Bank’s High Income Country (HIC) category experience a larger decline in GDP
growth (increase in unemployment) relative to unaffected HICs than is the case with Low
Income Countries (LIC).4
3 Resultsfrom estimating an AR(4) as in Cerra and Saxena (2008) are similar to Jorda’s local projections.
These are available on request. Another approach would be to estimate impulse responses using panel vector
autoregressions, an option we eschew in favor of the simplicity and flexibility of local projections.
4 One potential reason is that HIC rely more on services and (or) industry sectors than LIC.
2
The negative impact of health crises is felt in all components of national spending. Both
consumption and investment decline, with the latter being especially large. International
trade also plummets, and once again, bounce-back is rapid but by an amount insufficient to
restore the pre-crisis trend. The decline in total spending could spill over to other countries,
including those unaffected by the crisis, through a trade linkage channel. We find that these
indirect effects on domestic GDP — from trading partners affected by the disease — are not
trivial, both in terms of magnifying the initial decline in GDP and in the positive bounce-
back. Our estimate of the indirect channel working through international trade is around
20% of the total effect, consistent with structural model estimation in Bonadio et al. (2020).
Can government policy make a difference, as proposed by, e.g., Gourinchas (2020) and
Drechsel and Kalemli-Ozcan (2020)? We find that countries that respond in the onset year
with higher government expenditures, especially on health care, enjoy more bounce-back
in output growth compared to countries with less of a fiscal expenditures response. Given
that the health crises have a rather persistent effect on output, according to our estimation,
a quicker and larger bounce-back resulting from a stabilizing fiscal policy could have a
permanent impact on economic activity, consistent with Dupraz et al. (2019). In contrast,
we do not find that lowering taxes is effective in hastening recovery.
Contribution to the Literature

We contribute to several strands of the literature. First, our paper belongs to the literature
that investigates the effect of financial and political crises as in Cerra and Saxena (2008),
Reinhart and Rogoff (2009), Jordà et al. (2013) and Laeven and Valencia (2013). Different
from these papers, we investigate the effect of global health crises using several postwar
pandemics and epidemics, in the similar spirit of Jordà et al. (2011) who study financial
crises using data from 14 developed countries over 140 years (1870–2008). Jordà et al.
(2020) also examine low-frequency economic consequences of pandemics but focus on the
real rates of return, while we examine GDP, unemployment, and international trade. Our
work is also related to papers that look at the effect of the 1918 Spanish flu (Barro et al.
(2020) and Correia et al. (2020)) with implications for the COVID-19 pandemic.
Second, our paper contributes to the large volume of new work investigating the eco-
nomic impact and policy implications of COVID-19. Most of the work has been based
on estimation or calibration of versions of the SIR model. For example, Atkeson (2020)
analyzes disease scenarios that are designed to provide input into calculations of economic
3
costs. Specifically, he works with a Markov model of epidemic spread in which the popu-
lation is divided into three categories: susceptible, actively infected, and no longer conta-
gious. How an epidemic plays out over time is determined by the transition rates between
these three states. Eichenbaum et al. (2020) emphasize that the severity of the recession
will be exacerbated by people’s decisions to cut back on economic activity in order to re-
duce the severity of the epidemic and save lives. As the authors emphasize, the optimal
government containment policy saves thousands of lives but worsens the recession because
infected people do not fully internalize the effect of their decisions on the spread of the
virus. Berger et al. (2020) focus on testing and case-dependent quarantine during a pe-
riod of asymptomatic infection, and find that testing can result in a pandemic with smaller
economic losses while keeping the human cost constant. Glover et al. (2020) emphasize
the distributional consequences of shutdown policies. Different from those papers, ours
directly estimates the economic impact and policy effectiveness using historical events.
Third, our paper contributes to the literature that investigates the role of government
policy in containing crises. For example, Gourinchas (2020) and Drechsel and Kalemli-
Ozcan (2020) both propose a strong fiscal response to contain the impact of COVID-19.
A large and growing literature studies different policy responses to contain the impact of
COVID-19 such as Alvarez et al. (2020), Guerrieri et al. (2020), Fornaro and Wolf (2020)
and Bethune and Korinek (2020). Our paper adds to this work by directly estimating the
impact of different policy responses to past crises. In this sense, our paper is closely related
to the work by Cerra et al. (2013), which looks at different international policy responses
to spur a recovery from recessions.
How much can we say about COVID-19 based on this paper? We believe that our es-
timates are likely a lower bound, for reasons of both “shock” and “propagation”. COVID-
19 is more widespread than the average crisis in our sample, and may have a higher kill
rate. Travel bans, social distancing, and economic lock downs are without parallel. In the
COVID-19 world with more substantial trade linkages, the indirect, trade network chan-
nel is likely to be more important than what we find for these historical episodes. The
fact that today’s global value chains are more prevalent suggests that countries will go
down, and perhaps rebound, more sharply from COVID-19. The early signs indeed point
to COVID-19 being worse.5 Nevertheless, massive interventions by central banks and fis-
cal policymakers, of the type we find helps to speed up recovery, are now being undertaken
5 According to initial data releases, GDP growth in 2020Q1 in China, the U.S., and Euro area were -6.8%,
-4.8%, and -14.5%, respectively, while U.S. unemployment skyrocketed into double digits in April and May.
4
worldwide. Restoration of robust international trade linkages remains an open question,
however. Ominous signs of prolonged backlash against China appear from policymakers
and in the media. The sentiment for countries not to be so reliant on imports, especially in
sensitive sectors like medical supplies, may well prove an intractable foe of trade.
In the next section, we describe our data. Section 3 describes our econometric approach,
including how we address concerns about endogeneity. Section 4 documents the effect of
health crises on GDP and unemployment, while section 5 presents the effects on spending
and investigates propagation through trade linkages. Section 6 considers the effectiveness
of fiscal policy responses. Section 7 concludes. We discuss the relevance of our results
for the ongoing pandemic in Appendix C, including projections indicating how different
“this time” is materializing in 2020-21 compared to estimates from past crises. Our online
supplement contains additional information on data sources and tables and figures.
2 Data
We combine data from several sources. For the annual country-level analyses, we rely
mainly on the World Development Indicators (WDI) from the World Bank. We also get
quarterly GDP data from OECD National Accounts Statistics. Forecasts of GDP growth
are obtained from Consensus Economics Inc. and bilateral trade data from the World Inte-
grated Trade Solution (WITS) database. To identify the pandemic and epidemic events, we
manually collect data from the WHO and other public resources.
Epidemic and Pandemic Events

We focus on six postwar pandemic and epidemic events identified in Jamison et al. (2017)’s
volume 9 of Disease Control Priorities, a book authored by well-known global health ex-
perts. The Disease Control Priorities Network (DCPN) was a multi-year project managed
by the University of Washington’s Department of Global Health and the Institute for Health
Metrics and Evaluation.6 As of this writing, the book has received more than 3,000 cita-
tions according to Google Scholar. Three editions have been published: DCP1 in 1993 (by
the World Bank), DCP2 in 2006, and most recently DCP3 in 2017.7 We rely mainly on the
6 See
http://dcp-3.org/about-project for details.
7 Contributors
include over 500 scholars, policymarkers and technical experts. The editors include well-
known economists and CDC experts, such as Dean Jamison, Hellen Gelband, Susan Horton, Prabhat Jha,
5
9th volume of edition 3 which focuses on the economic impact of pandemics.
Using this volume as our guide, the six episodes we analyze are: the 1968 Flu (aka
“Hong Kong flu”), SARS (2003), H1N1 (2009), MERS (2012), Ebola (2014), and Zika
(2016). We determine the timing of the event from the dates that the World Health Or-
ganization (WHO) officially declares a Public Health Emergency of International Concern
(PHEIC). In most cases, there are significant time lags between the initial appearance of an
outbreak and official declaration.8 Reporting lags and even discrepancies between the Cen-
ters for Disease Control and Prevention (CDC) and the WHO do not affect our key identifi-
cation variable — a dummy that equals one when WHO declares a pandemic/epidemic for
an affected country and zero otherwise. In our matched sample, we have 287 country-year
observations for the identified shocks.9 Detailed information is in Table S.1.
Having identified the epidemic/pandemic events and affected countries, we examine
data on total cases and deaths from the official websites of the WHO, European Centre for
Disease Prevention and Control (ECDC), CDC and from public news articles. Among the
six events, the most widespread and deadly one is H1N1. It affected more than 200 coun-
tries, with more than 284,000 recognized deaths reported by the US CDC.10 The ECDC is
the only source containing detailed information for all affected countries around the world.
Figure A.1 depicts the global severity of those episodes, displaying the ECDC reported
number of cases. Although the on-going crisis stands out for its severity, other episodes
were large. For example, it is estimated that 500,000 infections occurred in Hong Kong in
the first two weeks of the 1968 Flu. Correspondingly, governments have responded quickly
to contain the negative effect of those health crises. We provide details of each historical
episode in the online supplement Table S.2.
Ramanan Laxminarayan, Charles N. Mock and Rachel Nugent. The project was funded by the Bill & Melinda
Gates Foundation, and the volume includes an introduction by Lawrence H. Summers.
8 For example, Hoffman and Silverberg (2018) find that the H1N1 outbreak initially began on March 15,
2009, was detected by officials on March 18, 2009, but was declared a PHEIC only on April 25, 2009.
Similarly, the West African Ebola outbreak began December 26, 2013, was detected on March 22, 2014, but
was declared a PHEIC only on August 8, 2014. For Zika, the main concern was about identification between
microcephaly and the true Zika virus infections. Some consider this outbreak to have begun on October 22,
2015, when the rise in microcephaly cases was first identified. Later, on November 28, 2015, there was strong
evidence for a link between the virus and the microcephaly. Nevertheless, the Zika outbreak was declared a
PHEIC only on February 1, 2016.
9 Originally, we have 313 country-year observations for the identified shocks, with 287 of them having
data for growth rates.

10 This amount is much larger than the number reported by WHO. The discrepancy exemplifies
the challenges in finding reliable and complete coverage of cases and fatalities, a subject we re-
turn to below. Detailed information is at http://www.cidrap.umn.edu/news-perspective/2012/06/
cdc-estimate-global-h1n1-pandemic-deaths-284000.
6
Country-level Variables
We mainly use annual country-level data from the World Bank’s World Development In-
dicators (WDI). This data set offers wide country coverage, containing the 210 countries
(economies) listed in Table A.1. The data set contains annual observations from 1960 to
2018. The WDI database is also useful in providing consistent coverage of many variables
we use for cross sectional comparison. This includes key controls for our GDP growth
and unemployment regressions such as trade to GDP, domestic credit to GDP, population,
and GDP per capita. We also use quarterly real GDP growth, from the OECD National Ac-
counts Statistics. The systemic banking crises are identified by Laeven and Valencia (2013)
(with an updated dataset in Laeven and Valencia (2020)) and a U.S. recession dummy is
from the NBER. Forecasts of GDP growth are obtained from Consensus Economics Inc.
The data are monthly, from a survey of analysts from large banks and financial firms. The
data covers over 32 countries from January 1990 to February 2020. We take GDP growth
expectations based the end of year t − 1 on year t for each country-year. We also collect
bilateral trade data from the World Integrated Trade Solution (WITS), which aggregates
data from UN COMTRADE and UNCTAD TRAINS database. It provides bilateral trade
exports and imports for more than 200 countries from 1988 to 2018 (see Table S.3). All
continuous variables are trimmed at the top and bottom 1% to remove outliers. Summary
statistics are in Table S.4 of our online supplement.
GDP growth Around Health Crises

A summary look at the relationship between these health crises and annual real GDP growth
can be seen in Figure 1.11 In the upper left panel, we depict the distribution of GDP growth
in all country-years other than the health crisis episodes. The upper right panel is the
equivalent for affected countries in the year the crisis was officially declared, while the
panel just below it (lower right) is for unaffected countries in that same year. Finally, to
gauge bounce-back, the lower left panel depicts the GDP growth distribution for affected
countries in the year immediately following the crisis. The colored bars depict the values in
each grouping for three countries: Finland, United States, and China.12
Average GDP growth for the non-disease sample is 3.8%. In the onset years of the
health crises, average GDP growth falls noticeably for affected countries, to 1.4%, while
11 We also investigate higher frequency quarterly data in Online Supplement Section S.4.
12 Note that the U.S. was never “Unaffected”, hence no observation in the lower right panel.
7
Figure 1 Real GDP Growth Distributions in Disease and Non-Disease Years
.15
.15
.1
.1
Density
Density
.05
.05
0
0
-10
-5
FIN
USA
5
China
10
15
-10
-5
FIN
USA
China
10
15
Non-disease Years Onset Years (Affected Countries)
Mean = 3.83 Mean = 1.41 (287 eposides)
China = 8.29 (red) China = 9.10 (3 eposides)
USA = 3.02 (blue) USA = 1.77 (6 eposides)
Finland = 2.74 (yellow) Finland = -3.04 (2 eposides)
.15
.15
.1
.1
Density
Density
.05
.05
0
0
-10
-5
USA
FIN
China
15
-10
-5
0
FIN
China
10
15
Next Years (Affected Countries)
Mean = 3.98
Onset Years (Unaffected Countries)
China = 9.51 Mean = 3.72
USA = 2.72 China = 3.35
Finland = 6.09 Finland = 0.72
N OTE: The distribution of real GDP growth rate (%) for (i) normal periods (including all countries in all non-disease years and all
Unaffected countries during the onset years of disease episodes), (ii) and (iii) onset years of the disease episodes for all Affected and
Unaffected countries, respectively, and (iv) the year subsequent to onset year for Affected countries. The yellow, blue and red line marks
the growth rate for Finland, US and China.
holding at 3.7% in unaffected countries (upper and lower right panels of Figure 1). Average
GDP growth among affected countries bounces back in the following year to just under
4.0% (lower left panel). In order to give a further idea about cross-country outcomes,
we depict the location of Finland, the U.S., and China. Of the six crises, these countries
were affected in 2, 6, and 3 episodes, respectively. Although the right panels indicate that
bounce-back in GDP growth is robust on average for affected countries, different countries
have different experiences. Growth in China continues practically unabated even through
crises episodes in which it was affected. Finland and the U.S. are close to each other in
non-crisis years, with mean GDP growth rates of 2.7% and 3.0%, respectively, but Finland
is hit much harder by the crises, with -3.0% average GDP growth compared to 1.8% for the
US. Finland also enjoys higher growth in bounce-back years, however, at 6.1% versus 2.7%
for the US. The different cross country outcomes such as these are crucial for identification.
8
3 Methodology
We use two approaches to study the effect of health crises on global macroeconomic out-
comes such as GDP growth and unemployment. First is the local projections method of
Jordà (2005), which we use to estimate impact effects and dynamic responses to the health
crisis shock. This approach is flexible, robust, and very widely used in the literature.13 Sec-
ond, we use panel regressions. These facilitate studying robustness of our baseline results
to various adjustments, including addressing endogeneity concerns. We use the Driscoll
and Kraay (1998) correction for all confidence bands and regression standard errors.
Impulse Response Functions We begin with the local projections method of Jordà (2005)
to estimate impulse response functions in the full panel of countries.
4 4
yit+H = αH
i +∑ βHj yit− j + ∑ δHs Dit−s + Xit + εit , with H = 0, 1, · · · , 5. (1)
j=1 s=0
where yit is alternatively real GDP growth or unemployment rate for country i in year t,
Dit is a shock dummy variable indicating a pandemic/epidemic disease hitting country i in
year t and Xit includes country-level controls for Trade/GDP, Domestic Credit/GDP, pop-
ulation and log GDP per capita. We include decade dummies and country fixed effects to
control for unobserved cross section and cross time heterogeneity. To control for business
cycles and financial crises, we also include a US recession dummy (from the NBER) and
a systemic banking crisis dummy as in Laeven and Valencia (2013). We display impulse
responses to an unexpected shock to Dit at time t, signifying the onset year of the crisis.
Specifically, we plot the dynamics of {δH 5
0 }H=0 for horizons up to five years after the shock,
along with one standard error bands.
Panel Regressions Our panel OLS regression is similar to the local projection estimation
equation in (1) and given as follows
yit = αi + βDit + Xit + εit (2)
where here we restrict yit to be real GDP growth rate for country i in year t, while Dit and
13 With objectives related to ours, Jordà et al. (2013) study the dynamics effects of financial crises using
the technique, for example.
9
Xit are the same as in equation (1).14 In some specifications, we replace Dit with measures
of crisis severity, such as individual countries’ mortality rates or infection rates, as well as a
relative severity dummy approach, as explained in detail later. To estimate standard errors,
we follow Driscoll and Kraay (1998), who note that traditional panel data techniques that
fail to account for cross-sectional dependence will result in inconsistently estimated stan-
dard errors. This is especially a problem with relatively large cross sections but small time
series samples. We implement their non-parametric covariance matrix estimation tech-
nique which they show yields standard error estimates that are robust to very general forms
of cross-sectional and temporal dependence.
Exogeneity It is important to address concerns about endogeneity in our approach. The

first concern is the assumption that the health crisis shock dummy Dit is exogenous to out-
put growth and unemployment. Alternatively, one could conceive that output growth is
exogenous, that recessions increase the probability of a health crisis, and that this reverse
causality accounts for the associations that we document. Furthermore, it might be that
third factors simultaneously affect GDP growth and the probability of a health crisis, in-
cluding government expenditures on health care, the focus of section 6. Or it may be that
(severity of) health crises and government expenditures are endogenous.
Similar concerns are voiced (and dexterously addressed) by Cerra and Saxena (2008),
in the case of financial and political shocks. Health crisis shocks are arguably more ex-
ogenous to country-level growth and employment than are financial crisis shocks,15 but
nevertheless we investigate the empirical importance of the endogeneity concerns. First,
we examine the role of expectations. We test if Consensus forecasts point to expected
lower GDP growth simultaneously with the occurrence of a disease outbreak. Although
this expectations channel is easier to see working through financial crises (investors fore-
seeing recession usher in a crisis), it is conceivable that expected weaker growth could sew
the seeds for health crises via health preparedness channels. We show robustness of our
baseline findings to controlling for consensus forecasts of GDP growth. We also test the
pre-trend assumption for our panel regression, showing that lagged shocks are insignificant
for GDP growth (see online Supplement Table S.5).
Second, we jointly estimate a system of seemingly unrelated regressions that takes into
14 To
save space, we report regressions with GDP growth only; results for unemployment are consistent.
15 “Thevirus respects no borders,” Chinese President Xi Jinping, G20 Leaders’ Summit on COVID-19, 27
Mar 2020. “The COVID-19 outbreak is the common enemy of the world.”
10
Figure 2 Effect of Health Crises on GDP Growth and Unemployment
GDP Growth Unemployment
1
1
0
.5
-1
Percent
Percent
-2
0
-3
-.5
-4
0 1 2 3 4 5 0 1 2 3 4 5
Years Years
N OTE: Impulse response functions (IRF) are estimated based on the local projection method as in Jordà (2005): yit+H = αH i +
∑4j=1 βHj yit− j + ∑4s=0 δH
s Dit−s + Xit + εit , with H = 0, 1, · · · , 5, where yit is the annual real GDP growth rate (unemployment rate) for
country i at year t, Dit is a dummy variable indicating a disease event hitting country i in year t, with Xit including country-level controls
such as Trade/GDP, Domestic Credit/GDP, population and log GDP per capita. We also include a decade dummy, US recession dummy,
a banking crisis dummy and country fixed effects. Standard errors are corrected using Driscoll and Kraay (1998). One standard error
bands are shown.
account feedback between countries’ health expenditure, the probability (or severity) of a
health crisis shock, and real GDP growth.
git = α1i + θ1 Dit + µ1 Dit−1 + β1 git−1 + γ1 Health Expit−1 + Xit + ε1it (3)
Health Expit = α2i + θ2 Dit + µ2 Dit−1 + β2 git−1 + γ2 Health Expit−1 + Xit + ε2it (4)
Dit = α3i + µ3 Dit−1 + β3 git−1 + γ3 Health Expit−1 + Xit + ε3it (5)
where git is annual real GDP growth for country i at year t, Dit is the shock dummy,
Health Expit is current health expenditures (% GDP), and Xit includes the same country-
level controls as in equation (1). All estimates include decade dummies, U.S. recession
dummy, systemic banking crises dummy and country fixed effects as in the baseline panel
OLS model. In the system of three equations, we allow for health crises to affect both real
GDP growth and health expenditure contemporaneously, while assuming that growth and
health expenditures affect health crises only with a lag. We alternatively estimate only the
system of equations (3) and (5).16
16 We also examine replacing the shock dummy variable with the ex post mortality rate.
11
4 Effects on GDP and Unemployment
4.1 Impulse Response Functions

Figure 2 displays local projections estimates of real GDP growth and unemployment to the
identified health crisis shock. The left panel represents the path of GDP growth in affected
countries relative to unaffected countries, following the health crisis shock. We display
estimates for the crisis onset year and subsequent five years. On average, GDP growth in
affected countries is 2.4% below that of unaffected countries in the onset year.17 Further-
more, bounce-back from health crises shocks appears quickly according to our estimates,
with affected countries enjoying nearly a one percentage point higher growth rate than
unaffected countries in the year following the crisis.18 Resumption in growth in affected
countries is not sufficient to overcome the initial decline, however, leaving the level of GDP
persistently lower in affected countries compared to unaffected countries.
The right panel of Figure 2 indicates that in the onset year, unemployment is 0.7%
higher in affected countries relative to unaffected countries. There is more persistence
in unemployment than GDP growth, as unemployment remains 0.5% higher in affected
countries in the year after onset. Disruptions to the labor market take longer to overcome
than those to output. In Figure 3 and Figure 4, we display unemployment impulse responses
by gender, education level, and sector. The effect of the crisis is felt less strongly on those
with a higher education level. Industrial workers (and output) are hit harder than workers
in the service and agricultural sectors, as displayed in Figure 4. In addition, although the
impact effect on unemployment is felt approximately equally between males and females,
there is significantly greater persistence in female unemployment. Hardest hit of all are
female workers with a basic education, as seen in the lower right panel of Figure 3.
Health Crises and Systemic Banking Crises

For perspective, we jointly estimate the effect on GDP growth of health crises and banking
crises, identified by Laeven and Valencia (2013), by augmenting our baseline estimation
equation (1) with a dummy for the systemic banking crises and its four lags. As shown in
Figure 5, the effects on GDP growth of a health crisis (in blue) are of the same magnitude
17 Against this, note that the IMF forecasts -5% world GDP growth for 2020, down sizably from actual
growth of +2.9% in 2019 (World Economic Outlook, June 2020).

18 The IMF forecasts a healthy recovery of 5.4% in world GDP growth in 2021.
12
Figure 3 Effect on Unemployment (%): Education and Gender Breakdown
Panel A: Basic Education Panel B: Intermediate Education Panel C: Advanced Education

1.5
1.5
1.5
Percent
Percent
Percent
-1
-1
-1
0 1 2 3 4 5 0 1 2 3 4 5 0 1 2 3 4 5
Years Years Years
Panel D: Male Panel E: Female Panel F: Female with Basic Education

13
1.5
1.5
1.5
Percent
Percent
Percent
-1
-1
-1
0 1 2 3 4 5 0 1 2 3 4 5 0 1 2 3 4 5
Years Years Years
4 4
N OTE: Impulse response functions (IRF) are estimated based on the local projection method as in Jordà (2005) yit+H = αH H H
i + ∑ j=1 β j yit− j + ∑s=0 δs Dit−s + Xit + εit , with H = 0, 1, · · · , 5,
where yit is the annual unemployment rate for country i at year t, Dit is a dummy variable indicating a disease event hitting country i in year t, with Xit including country-level controls such as
Trade/GDP, Domestic Credit/GDP, population and log GDP per capita. We also include a decade dummy, US recession dummy, a banking crisis dummy and country fixed effects. Standard
errors are corrected using Driscoll and Kraay (1998). One standard error bands are shown. Panels A, B and C present IRFs of unemployment for workers with basic education, intermediate
education, and advanced education, respectively. Panels D and E present IRFs of unemployment for male and female workers, respectively. Panel F presents unemployment for female workers
with basic education.
Figure 4 Effect on GDP growth and Unemployment (%): Sector Breakdown
GDP growth
Panel A: Agricultural Sector Panel B: Industry Sector Panel C: Service Sector
4
4
2
2
0
0
Percent
Percent
Percent
-2
-2
-2
-4
-4
-4
-6
-6
-6
0 1 2 3 4 5 0 1 2 3 4 5 0 1 2 3 4 5
Years Years Years
Unemployment
14
Panel D: Agricultural Sector Panel E: Industry Sector Panel F: Service Sector

.7
.7
.7
Percent
Percent
Percent
-.3
-.3
-.3
0 1 2 3 4 5 0 1 2 3 4 5 0 1 2 3 4 5
Years Years Years
4 4
N OTE: Impulse response functions (IRF) are estimated based on the local projection method as in Jordà (2005) yit+H = αH H H
i + ∑ j=1 β j yit− j + ∑s=0 δs Dit−s + Xit + εit , with H = 0, 1, · · · , 5, where
yit is the real GDP growth rate or annual unemployment rate for country i at year t, Dit is a dummy variable indicating a disease event hitting country i in year t, with Xit including country-level
controls such as Trade/GDP, Domestic Credit/GDP, population and log GDP per capita. We also include a decade dummy, US recession dummy, a banking crisis dummy and country fixed
effects. Standard errors are corrected using Driscoll and Kraay (1998). One standard error bands are shown. Panel A (D), B (E) and C (F) present IRFs for real GDP growth (unemployment)
rate at agricultural, industry and service sectors.
Figure 5 Effects of Health Crises and Banking Crises on GDP Growth
Health Crises
1
Banking Crises
0
Percent
-1
-2
-3
0 1 2 3 4 5
Years
N OTE: Impulse response functions (IRF) are estimated based on the local projection method as in Jordà (2005) git+H = αH i +
Health Crises + 4 γH DBanking Crises + X + ε , with H = 0, 1, · · · , 5, where g is the annual real GDP growth
∑4j=1 βHj git− j + ∑4s=0 δH D
s it−s ∑ it it it
s=0 s it−s
rate for country i at year t, DHealth Crises DBanking Crises is a dummy variable indicating a disease event (banking crisis) hitting country
it it
i in year t, with Xit including country-level controls such as Trade/GDP, Domestic Credit/GDP, population and log GDP per capita. We
also include a decade dummy, US recession dummy and country fixed effects. Standard errors are corrected using Driscoll and Kraay
5 H 5
(1998). The blue line represents δH 0 H=0 and the red line represents γ0 H=0 . One standard error bands are shown.
as banking crises (in red), although the dynamics are different. In the onset year, there is a
fall in real GDP, by 2.2% for health crisis and 1.3% for banking crises. However, one year
later, GDP growth bounces back after a health crisis to 0.7% but continues to fall after a
banking crisis. Although the magnitude from a health crisis in the onset year is comparable
to that of a banking crisis, it features faster bounce-back of growth than banking crises.
4.2 Panel Regressions

In order to examine various adjustments to the baseline results displayed above, we estimate
panel regressions for real GDP growth in Table 1. Column (1) displays results for the full
sample period 1960-2018, while the remaining columns are for 1990-2018 due to our use
of consensus forecasts, which are available for 32 countries beginning in 1990. Specifica-
tions with the forecasts control for expectations, which essentially entirely account for the
effects of the economic control measures. Table 1 includes all pandemic/epidemic events
in the shock dummy while Table 2 utilizes separate shock dummies for each episode. The
coefficients in Table 1 on the shock dummy range from -1.4% to -3.4%, statistically signif-
icant and economically large. In Table 2, with separate crisis event shock dummies, H1N1
15
has the largest effect, consistent with H1N1 having the largest number of deaths and cases.
But still, the effect of the other disease episodes is not negligible.
We devote special attention to the H1N1 crisis, given its simultaneous occurrence with
the 2009 Global Financial Crisis, with three elements of the estimation. First, we examine
robustness to excluding the episode. Second, we include in our impulse response function
estimation equation and panel regressions a recession dummy for the U.S. economy and a
systemic banking crisis dummy. Those dummy variables should absorb the contemporane-
ous effect from the global financial crisis on GDP and unemployment. Third, we examine
robustness to weighting our shock dummy by measures of the severity of each health crisis,
as in Table S.6. Even though the global financial crisis affected most countries in 2009, the
cross country heterogeneity in H1N1 exposure is arguably exogenous to the financial crisis.
As seen in the table, the coefficients on our severity proxies are significantly negative for
GDP growth: more severe health crises portend greater economic damage.
Note two caveats about our severity estimation. First, there might be non-negligible
measurement error for individual country reports of deaths and infection cases.19 For ex-
ample, the reporting discrepancy (both cases and deaths) between the CDC and WHO could
be systematically biased and incomplete. This consideration does not affect identification
of the shock itself, but might contaminate interpretation of the severity panel regression
estimates. Second, weighting the shock dummy by the individual country cases or deaths
measure (however mis-estimated) assumes that, e.g., a 2% death rate in Ebola creates the
same economic impact as a 2% death rate in H1N1. It is more reasonable to compare death
rates and thus (cross-sectional) severity within the same health crisis.
To this end, and to be consistent with the only form in which severity data are available
for the 1968 Flu (“isolated”, “regional”, and “widespread”), we form three dummy vari-
ables that capture the relative severity for affected countries in each episode.20 We label
affected countries as high, medium or low severity, using their ex-post mortality or case
rate for each episode.21 With this, our severity analysis groups countries into four cate-
gories: unaffected countries, low affected countries, medium affected countries and high
affected countries (see Online Supplement Table S.7 for country-episode category assign-
19 Inour matched 287 country-year sample for the health crises dummy, we have information on cases for
265 of them and on deaths for 259 of them. We do not have exact cases and deaths for the 1968 Flu.
20 We still use the individual country’s data for either mortality or case rates to form our new dummy
variables. Although there might be measurement error for an individual country’s data, the relative measure
we construct should contain less of it.
21 The threshold is percentiles 30 and 70. The results remain unchanged if we use the 1/3 and 2/3 cutoff.
16
Table 1 The Effect of Health Crises on GDP Growth
GDP growth rate %

(1) (2) (3) (4)
Sample Period: 1960-2018 1990-2018
All Events All Events All Events Without H1N1
Shock -2.60** -2.60** -3.44*** -1.40***
(1.18) (1.21) (0.96) (0.28)
Consensus Forecast 0.52*** 0.64***
(0.12) (0.11)
Trade/GDP 0.15 0.42 0.51 0.34
(0.20) (0.34) (0.43) (0.38)
Domestic Credit/GDP -0.67* -0.71 -1.42 -0.99
(0.38) (0.45) (0.99) (0.84)
Log(Population) 0.17*** 0.12* 0.08 0.07
(0.04) (0.06) (0.06) (0.05)
Log(GDP per capita) -0.31*** -0.20 -0.04 -0.03
(0.07) (0.12) (0.14) (0.13)
Recession -0.35 -0.52 -0.33 0.16
(0.21) (0.37) (0.43) (0.25)
Banking Crisis -1.34*** -1.43*** 0.40 -0.10
(0.32) (0.37) (0.67) (0.56)
Constant 4.63*** 4.47*** 2.11*** 1.70***
(0.42) (0.47) (0.46) (0.40)
Observations 6536 4303 531 502
Within R2 0.056 0.064 0.229 0.179
Decade FE Yes Yes Yes Yes
Country FE Yes Yes Yes Yes
N OTE: The dependent variable is real annual GDP growth. The sample period for column (1) is 1960-2018 while the sample period
for columns (2)-(4) is 1990-2018. The shock dummy equals one for country i hit by a health crisis in onset year t, and zero otherwise.
In columns (1)-(3), we include six health crises while column (4) excludes H1N1. In all specifications, we include both country and
decade fixed effects. All standard errors are corrected using Driscoll and Kraay (1998) and reported in parentheses. ∗ , ∗∗ and ∗∗∗ indicate
statistical significance at the 10%, 5%, and 1% level, respectively.
ments). We expect that all affected country severity dummy variables in the GDP growth
regressions will be negative and have an average magnitude that is approximately equal to
the coefficient on the shock dummy in Table 1. Furthermore, we expect that the coefficient
on higher severity dummies should be larger than for lower severity dummies.
Table 3 reports our panel regression with the severity dummy variables. The coefficients
on all dummies are negative, consistent with our main regression in Table 1. The economic
magnitude is much larger for high and medium severity countries than for low severity
countries. The coefficients are highly significant and vary between -3.1% and -4.8% for
the high and medium severity dummies, while they vary from -0.9% to -1.8%, sometimes
insignificantly, for the low severity dummies. Interestingly, the high and medium severity
17
Table 2 The Effect of Health Crises on GDP Growth, by Crisis
GDP growth rate %

(1) (2) (3) (4)
Sample Period: 1960-2018 1990-2018
EBOLA 0.83*** 0.57* -0.29 -0.34
(0.28) (0.29) (0.26) (0.28)
H1N1 -4.31*** -4.27*** -5.14***
(0.55) (0.61) (0.38)
MERS -1.11*** -0.88** -1.51*** -1.40***
(0.33) (0.33) (0.31) (0.30)
SARS 0.08 0.05 -1.02*** -1.06***
(0.49) (0.45) (0.24) (0.24)
Zika -0.51* -0.47 -2.15*** -2.15***
(0.27) (0.30) (0.28) (0.28)
Hkflu 0.26
(0.27)
(0.12) (0.11)
Trade/GDP 0.13 0.40 0.41 0.34
(0.20) (0.33) (0.39) (0.38)
Domestic Credit/GDP -0.62* -0.66 -1.24 -0.99
(0.36) (0.43) (0.91) (0.85)
Log(Population) 0.18*** 0.12** 0.09 0.07
(0.03) (0.06) (0.05) (0.05)
Log(GDP per capita) -0.31*** -0.20 -0.06 -0.03
(0.07) (0.12) (0.14) (0.13)
Recession -0.17 -0.20 0.13 0.17
(0.19) (0.31) (0.27) (0.24)
Banking Crisis -1.36*** -1.49*** 0.02 -0.10
(0.32) (0.38) (0.55) (0.56)
Constant 4.64*** 4.36*** 2.02*** 1.71***
(0.44) (0.46) (0.41) (0.40)
Within R2 0.067 0.081 0.264 0.181
N OTE: The dependent variable is real annual GDP growth. The sample period for column (1) is 1960-2018 while the sample period for
columns (2)-(4) is 1990-2018. Country and decade fixed effects are included. All standard errors are corrected using Driscoll and Kraay
(1998) and reported in parentheses. ∗ , ∗∗ and ∗∗∗ indicate statistical significance at the 10%, 5%, and 1% level, respectively.
18
Table 3 The Effect of Health Crises on Real GDP Growth, by Severity
GDP growth rate %

(1) (2) (3) (4) (5) (6)
Sample Period: 1960-2018 1990-2018 1960-2018 1990-2018
High Mortality Rate -3.56*** -3.72*** -4.04***
(1.04) (1.06) (0.87)
Medium Mortality Rate -3.68*** -3.59*** -4.48***
(0.96) (1.06) (0.60)
Low Mortality Rate -0.90 -0.90 -1.41**
(0.82) (0.79) (0.58)
High Cases/Pop -3.01** -3.07** -4.79***
(1.31) (1.42) (1.19)
Medium Cases/Pop -3.18** -3.14** -3.84***
(1.41) (1.41) (0.63)
Low Cases/Pop -1.32* -1.31* -1.84*
(0.74) (0.73) (0.94)
(0.12) (0.12)
Trade/GDP 0.16 0.45 0.49 0.15 0.44 0.48
(0.20) (0.35) (0.45) (0.20) (0.34) (0.42)
Domestic Credit/GDP -0.66* -0.70 -1.31 -0.67* -0.71 -1.28
(0.37) (0.45) (0.97) (0.37) (0.45) (0.95)
Log(Population) 0.18*** 0.12** 0.08 0.17*** 0.12* 0.07
(0.03) (0.06) (0.06) (0.03) (0.06) (0.05)
Log(GDP per capita) -0.32*** -0.21* -0.06 -0.31*** -0.19 -0.04
(0.07) (0.12) (0.14) (0.07) (0.12) (0.14)
Recession -0.33 -0.48 -0.23 -0.36* -0.55 -0.39
(0.20) (0.35) (0.39) (0.21) (0.37) (0.44)
Banking Crisis -1.33*** -1.43*** 0.28 -1.34*** -1.44*** 0.42
(0.32) (0.38) (0.65) (0.32) (0.37) (0.65)
Constant 4.61*** 4.45*** 2.16*** 4.61*** 4.46*** 2.21***
(0.42) (0.46) (0.45) (0.42) (0.47) (0.46)
Observations 6536 4303 531 6536 4303 531
Within R2 0.059 0.069 0.237 0.057 0.066 0.231
Decade FE Yes Yes Yes Yes Yes Yes
Country FE Yes Yes Yes Yes Yes Yes
N OTE: The dependent variable is real annual GDP growth. The sample period for columns (1) and (4) is 1960-2018 while the sample
period for columns (2)-(3) and (5)-(6) is 1990-2018. Country and decade fixed effects are included. All standard errors are corrected
using Driscoll and Kraay (1998) and reported and reported in parentheses. ∗ , ∗∗ and ∗∗∗ indicate statistical significance at the 10%, 5%,
and 1% level, respectively.
19
dummies, both large and highly statistically significantly negative, are not significantly
different from each other. This indicates that the relationship between health crisis severity
and economic loss is non-monotonic: at some point along the severity spectrum, additional
severity doesn’t bring any more economic losses. For comparison, we also estimate local
projection impulse response functions for real GDP growth using these three new dummy
variables and display them in Figure S.1 of the Online Supplement.
Table 4 Placebo Test
GDP growth rate %

(1) (2) (3) (4)
Sample Period: 1960-2018 1990-2018
Shock 0.18 0.01 -0.05 -0.05
(0.25) (0.28) (0.51) (0.51)
(0.15) (0.11)
Trade/GDP 0.19 0.53 0.86 0.37
(0.22) (0.39) (0.69) (0.39)
Domestic Credit/GDP -0.72 -0.75 -1.73 -0.98
(0.44) (0.51) (1.15) (0.85)
Log(Population) 0.17*** 0.12* 0.05 0.07
(0.03) (0.06) (0.06) (0.05)
Log(GDP per capita) -0.33*** -0.23* -0.04 -0.04
(0.08) (0.13) (0.15) (0.13)
Recession -0.55* -0.91* -0.89 0.23
(0.30) (0.49) (0.74) (0.22)
Banking Crisis -1.25*** -1.27** 1.33 -0.07
(0.39) (0.49) (1.06) (0.55)
Constant 4.62*** 4.61*** 1.91*** 1.63***
(0.46) (0.51) (0.51) (0.39)
Within R2 0.040 0.036 0.118 0.169
N OTE: The dependent variable in columns (1)-(4) is real annual GDP growth rate. The sample period for
column (1) is 1960-2018 while the sample period for columns (2)-(4) is 1990-2018. The shock variable is
randomly generated. Country and decade fixed effects are included. All standard errors are corrected using
Driscoll and Kraay (1998) and reported in parentheses. ∗ , ∗∗ and ∗∗∗ indicate statistical significance at the
10%, 5%, and 1% level, respectively.
Finally, as a robustness check on the identification of disease episode event-years, we do

a placebo test by randomly picking a country-year observation as our shock dummy and re-
estimating the panel regression. The results are in Table 4. The coefficient on this randomly
20
constructed variable is statistically insignificant, suggesting that our shock dummy indeed
captures the effect of health crises on real GDP growth.
Feedback among Growth, Health Crises, and Health Expenditures

As discussed in Section 3, our baseline estimation assumes that the health crisis shock is ex-
ogenous to contemporaneous GDP growth. Although this is arguably reasonable, one may
wonder whether lower past economic growth reduces health-related expenditures, making
the country more vulnerable to a health crisis. Here we allow GDP growth, health expen-
ditures, and the health crisis to be jointly determined in a system of equations (3), (4) and
(5). We estimate this using seemingly unrelated regressions (SUR), modeling the determi-
nation of the shock dummy linearly, and report results in Table 5. Our key messages from
the baseline regression are robust: GDP falls by 2.4 % in the onset year, according to the
SUR estimates, and bounces back by 1.2% in the following year. Moreover, higher past
growth does lower the probability of a health crisis. Somewhat anomalously, higher past
health expenditures increase the probability of a health crisis.22
4.3 Geographic, Sector, and Episode Breakdowns

We explore heterogeneity in the effects of health crises along multiple additional dimen-
sions.23 Panel A in Figure 6 displays estimates for the H1N1 crisis alone. Consistent with
the results above, the effect of H1N1 is larger than our full sample estimates. In the onset
year, the growth rate for affected countries is 4.2% lower than for unaffected ones. There is
still bounce-back one year later — the growth rate for affected countries is 1% higher than
that for unaffected ones. Panel B in Figure 6 considers High-income countries (in blue) and
Low-income countries (in red), as classified by the World Bank.24 High income countries
affected by the crisis have a GDP growth rate in the onset year that is 2.4% less than the
GDP growth for high income countries unaffected by the crises. Bounce-back for these
affected high-income countries is quick, however, as seen by the fact that growth is 0.8%
22 The sample size is reduced to around 2,500 because we add health expenditures, which is unavailable
for some countries.
23 To save space, we display impulse response functions only for real GDP growth. Those for unemploy-
ment, which are available upon request, are consistent with the GDP growth in the sense of Okun’s law.
24 The World Bank groups countries into four categories based on 2018 GNI per capita — High-income,
Upper-middle-income, Lower-middle-income and Lower-income economies. We estimate the impulse re-

sponse functions for High-income and Lower-income country groups separately.
21
Table 5 Seemingly Unrelated Regressions:
Growth, Health Crises, and Health Expenditure
System 1 Shock Shock (t − 1) GDP Growth (t − 1) Health Exp (t − 1) Obs R2

GDP growth -2.38*** 1.18*** 0.21*** 0.29*** 2,523 0.42
(0.21) (0.22) (0.02) (0.07)
Health Exp 0.24*** -0.06* -0.00 0.77*** 2,523 0.96
(0.04) (0.04) (0.00) (0.01)
Shock -0.10*** -0.01*** 0.02** 2,523 0.16
(0.02) (0.00) (0.01)
System 2
GDP growth -2.36*** 1.04*** 0.24*** 0.18*** 2,676 0.40
(0.21) (0.21) (0.02) (0.07)
Shock -0.09*** -0.01*** 0.01** 2,676 0.15
(0.02) (0.00) (0.01)
N OTE: System 1 reports estimates from the joint estimation of system of equations (3), (4) and (5). System 2
reports estimates from the joint estimation of system of equations (3) and (5). ∗ , ∗∗ and ∗∗∗ indicate statistical
significance at the 10%, 5%, and 1% level, respectively.
higher in affected countries in the year after the crisis was declared. According to the red
line in the figure, affected low-income countries have GDP growth rates that are not signif-
icantly different from unaffected low-income countries. Note that these are within-group
comparisons, and hence do not speak to the issue of whether high income or low income
countries are more affected by health crises.25
Panel C and Panel D show the effects on advanced and emerging market economies
according to the IMF classification. In the onset year, the growth rate among advanced
economies falls by 2.7% in affected compared to unaffected countries. One year later, there
is a bounce back to 1.1% for the advanced country group. For emerging market economies,
the growth rate falls by 2.1% for affected countries compared to unaffected ones, with a
bounce back at 0.5% one year after the shock. One potential reason for a larger effect of
health crises on advanced country groups is due to the economic structure. As noted above,
in Figure 4, we divide GDP into three sectors and find that industry and service sectors
are affected more by health crises, while agricultural output is not significantly different in
affected and unaffected countries.
Panel E and Panel F consider geographic regions. The decline in growth for affected
25 The IMF growth forecasts for Low Income Developing countries is -1% in 2020, down from 5.2% in
2019. This compares to a forecast of -8.1% in 2020 for Advanced Economies. The IMF projects a rebound
to 5.2% for the low income countries in 2021.
22
Figure 6 Effect on GDP: Episode and Geographic Breakdowns
Panel A: H1N1 Panel B: High vs. Low Income Country

2
2
HIC
LIC
1
1
0
0
-1
-1
Percent
Percent
-2
-2
-3
-3
-4
-4
-5
-5
0 1 2 3 4 5 0 1 2 3 4 5
Years Years
Panel C: Advanced Economies Panel D: Emerging Market Economies

2
2
1
1
0
0
Percent
Percent
-1
-1
-2
-2
-3
-3
-4
-4
0 1 2 3 4 5 0 1 2 3 4 5
Years Years
Panel E: East Asia and South Asia Panel F: Europe and Central Asia
2
2
1
1
0
0
-1
-1
Percent
Percent
-2
-2
-3
-3
-4
-4
-5
-5
-6
-6
0 1 2 3 4 5 0 1 2 3 4 5
Years Years
∑4j=1 βHj git− j + ∑4s=0 δH
s Dit−s + Xit + εit , with H = 0, 1, · · · , 5, where git is the annual real GDP growth rate for country i at year t, Dit
is a dummy variable indicating a disease event hitting country i in year t, with Xit including country-level controls such as Trade/GDP,
Domestic Credit/GDP, population and log GDP per capita. We also include a decade dummy, US recession dummy, a banking crisis
dummy and country fixed effects. Standard errors are corrected using Driscoll and Kraay (1998). One standard error bands are shown.
Panel A re-defines the dummy Dit to flag the H1N1 shock only. Panel B presents IRFs for the sample of “High Income Country” and
“Low Income Country” according to World Bank Classification. Panel C (D) presents IRFs for the sample of advanced economies
(emerging market economies). Panel E (F) is for East Asia and South Asia (Europe and Central Asia).
23
East and South Asia countries relative to the unaffected ones is 1.1% in the onset year,
with a 1.8% bounce-back one year later. For the Europe and Central Asia group, affected
countries have a 4.3% decrease in GDP growth compared to unaffected countries in the
onset year, with a 0.9% bounce-back one year later. One potential explanation may be due
to the role of fiscal policy, which is explored below.
5 International Trade and Cross-Country Propagation

In addition to the effect on the production side, we also investigate the effect of past health
crises on different components of total spending. In the Online Supplemental Appendix
Section S.3, we show the negative and significant effects on consumption and investment.
Here we focus on international trade (exports plus imports). Declines in spending may
explain why the effect of health crises on output is very persistent. Furthermore, the drop
in spending could also spillover to other countries, including unaffected countries, through
an international trade channel. To this end, we decompose the effect from health crisis
shocks into a direct channel and an indirect channel through affected trading partners.
Being involved in a global value chain through trade could be a mixed blessing for a
country during a pandemic. On the one hand, the negative impact of health crises on the
trading partner can spillover to the domestic economy through a trade channel, making
health crises economically more contagious. On the other hand, the bounce-back effect
from a health crisis for the affected trading partner can also benefit the domestic country.
Moreover, being more integrated into global value chains can help firms diversify risks
when the country itself is hit by the health crisis (see Huang (2017)). To estimate the effect
of such a channel, we decompose the impact of health crises into a direct channel and an
indirect channel that captures the effect of the crisis on trading partners.
In this section, we estimate the trade network effect and compare its importance across
episodes. To understand this, consider the “trade network heat maps” of Figure A.2. This
depicts the severity of a health crisis episode for each country by using infection cases
from each of that country’s trading partners and weighting case numbers by their bilateral
trade share with the domestic country. In other words, for each country the map depicts:
how much do we trade with other countries and how badly were those trading partners
affected?26 As seen in Figure A.2, this trade linkage channel varies from episode to episode
26 Recall that the trade data is available only from 1988-2018, hence no heat map for the 1968 Flu.
24
Figure 7 Health Crises and International Trade
Panel A: Effect on Trade growth (exports+imports) Panel B: Effect on GDP growth: the trade channel
Direct
10
1
Indirect
0
0
Percent
Percent
-10
-1
-20
-2
-30
-3
0 1 2 3 4 5 0 1 2 3 4 5
Years Years
N OTE: Impulse response functions (IRF) are estimated based on the local projection method as in Jordà (2005): git+H = αH i +
∑4s=1 βH 4 H
s git−s + ∑s=0 δs Dit−s + Xit + εit , with H = 0, 1, · · · , 5, where git is the annual real growth rate of total trade (export+import)
in Panel A and is GDP growth in Panel B for country i at year t, Dit is a dummy variable indicating a health crisis hitting country i
in year t, with Xit including country-level controls such as Trade/GDP, Domestic Credit/GDP, population and log GDP per capita. We
also include a decade dummy, U.S. recession dummy, a banking crisis dummy and country fixed effects. In panel B, we also include a
control variable Di jt in the regression, where Di jt = 1 if country i’s trading partner country j has been hit by the health crisis at year t.
The blue line is the direct effect (coefficient on Dit ) while the red dashed line is the indirect effect (coefficient on Di jt ). Standard errors
are corrected using Driscoll and Kraay (1998). One standard error bands are shown.
and varies across countries during any given episode. Clearly, the trade network effect is
potentially much more severe during COVID-19 than the other episodes.
With our health crises–trade network proxies in hand, we start by estimating the effect
of health crises on the growth rate of international trade, the sum of a country’s multilateral
exports plus imports. Crises can lower trade through both an extensive margin and intensive
margin, as noted by Fernandes and Tang (2020) who look at the effect of SARS on Chinese
trade. Potential lock-downs and travel bans could amplify the negative impact. In Panel A
of Figure 7, we display our results, derived from the customary local projections estimator.
International trade of affected countries plummets in the onset year, by around 19.0%. This
is on par with the U.S. trade collapse in 2008-09 (see Levchenko et al. (2010) and Novy
and Taylor (2014)). Affected country trade rebounds quickly, growing relative to the trade
of unaffected countries by 7.2% one year later.
To capture the propagation effects to other countries through trade networks, we be-
gin by separately estimating the direct effect of the health crisis, captured by our shock
dummy, and the indirect effect, captured by an indicator function that flags whether the
trading partner is affected by the health crisis. To implement this, we augment our baseline
estimation equation (1) with a dummy variable that indicates whether any of one’s trading
25
Table 6 The Effect of Health Crises on GDP Growth: Trade Linkages
GDP growth rate %

(1) (2) (3) (4) (5) (6)
Sample Period: 1988-2018
Shock -2.22** -1.98**
(1.03) (0.97)
High Mortality Rate -3.28*** -3.02***
(0.86) (0.83)
Medium Mortality Rate -3.13*** -2.87***
(0.88) (0.86)
Low Mortality Rate -0.55 -0.40
(0.61) (0.56)
High Cases/Pop -2.62** -2.36**
(1.21) (1.15)
Medium Cases/Pop -2.71** -2.45**
(1.20) (1.11)
Low Cases/Pop -0.92 -0.71
(0.55) (0.49)
Shock to Trade Partner -0.52** -0.55* -0.56**
(0.23) (0.27) (0.26)
Trade Weighted by Indirect Shock -1.00** -0.99** -1.07**
(0.38) (0.48) (0.44)
Trade/GDP 0.19 0.17 0.21 0.19 0.20 0.18
(0.33) (0.33) (0.34) (0.34) (0.34) (0.33)
Domestic Credit/GDP -0.73 -0.73 -0.72 -0.72 -0.73 -0.73
(0.46) (0.46) (0.45) (0.45) (0.45) (0.45)
Log(Population) 0.12** 0.11** 0.12** 0.12** 0.11** 0.11**
(0.05) (0.05) (0.05) (0.05) (0.05) (0.05)
Log(GDP per capita) -0.20** -0.21** -0.20** -0.22** -0.19** -0.21**
(0.09) (0.09) (0.09) (0.09) (0.09) (0.09)
Recession -0.56 -0.57 -0.52 -0.52 -0.58 -0.59
(0.38) (0.38) (0.36) (0.36) (0.38) (0.38)
Banking Crisis -1.54*** -1.54*** -1.54*** -1.54*** -1.55*** -1.55***
(0.37) (0.36) (0.37) (0.37) (0.36) (0.36)
Constant 4.76*** 4.99*** 4.75*** 4.97*** 4.76*** 5.01***
(0.46) (0.51) (0.45) (0.52) (0.45) (0.51)
Observations 4502 4502 4502 4502 4502 4502
Within R2 0.065 0.066 0.070 0.070 0.066 0.067
N OTE: The dependent variable is annual real GDP growth. Shock dummy equals one for country i in the
onset year t, and zero otherwise. Shock to trade partner equals 1 if one of the country’s trading partners is
hit by a health crisis, and 0 otherwise. The weight trade network in columns (2), (4), and (6) is constructed
by multiplying the shock to a country’s trading partner dummy by the share of bilateral trade between these
two countries in the country’s total trade (Trade weighted by indirect shock). Standard errors are corrected
using Driscoll and Kraay (1998) and reported in parentheses. ∗ , ∗∗ and ∗∗∗ indicate statistical significance at
the 10%, 5%, and 1% level, respectively.
26
partners has been hit by the health crisis in the same year. As seen in Panel B of Figure
7, indirect effects are not trivial, contributing approximately -0.5% to GDP growth in the
onset year (versus direct effects of -1.8%) and +0.4% in the bounce-back year, or about
half the magnitude of the recovery’s direct effect.27
We also use panel regressions to test the importance of trade linkages, as in Table 6.28
In column (1), we have a dummy capturing whether the trading partner was affected, as in
the IRF estimation. In column (2), we add a continuous variable, labelled trade weighted
by indirect shock, which multiplies the shock dummy (to a country’s trading partner) by the
bilateral trade between these two countries, as a share of the country’s total trade. Columns
(3) and (4) use the ex-post high, medium and low mortality rate dummies, while columns
(5) and (6) use the equivalent case rate dummies, and so is akin to column (1) and column
(2). The estimates indicate that the indirect effect of health crises through trade linkages is
large and significant. According to column (1), the impact through trade is around one third
of the direct effect. When taking into account the importance (weights) of different trading
partners, the effect becomes larger, especially for countries with high severity. The effects
of health crises on domestic GDP growth are significantly magnified by trade linkages.
6 Fiscal Policy
In response to COVID-19, finance ministries have undertaken a variety of spending and
tax-related policies designed to support households and businesses, and soften the impact
on economic activity. According to the standard Keynesian logic, fiscal stimulus in a time
of crisis, either by increasing government spending or cutting taxes, can speed up economic
recovery (see Gourinchas (2020)). More generally, fiscal policy has been proposed as an
effective way to address crises, such as during the zero-lower bound period and in times
of secular stagnation (see Eggertsson (2011), Eggertsson and Krugman (2012), Eggerts-
son et al. (2016), Benigno and Fornaro (2018), Fatás and Summers (2018), Fornaro and
Wolf (2020)). Furthermore, Dupraz et al. (2019) find a permanent effect from stabiliza-
tion policy in dampening economic fluctuations and raising the average level of activity. A
27 Ourestimation of the indirect trade channel is very similar to the work by Bonadio et al. (2020), who
find that one third of the average real GDP downturn due to the COVID-19 shock is through global supply
chains, using an estimated structural model.
28 These use trading partner’s shock dummies to measure the indirect trade channel. Table S.8 of the online
supplement shows robustness to using individual countries mortality or case rates to construct the indirect
trade measure.
27
Figure 8 Effect on GDP Growth and Unemployment
Conditional on Immediate Health Spending Response
GDP growth
Panel A: High Health Expenditure Response Panel B: Low Health Expenditure Response
2
2
1
1
0
0
Percent
Percent
-1
-1
-2
-2
-3
-3
-4
-4
0 1 2 3 4 5 0 1 2 3 4 5
Years Years
Unemployment
Panel C: High Health Expenditure Response Panel D: Low Health Expenditure Response
1
1
Percent
Percent
0
0
-1
-1
0 1 2 3 4 5 0 1 2 3 4 5
Years Years
∑4s=1 βH 4 H
s yit−s + ∑s=0 δs Dit−s + Xit + εit , with H = 0, 1, · · · , 5, where yit is the annual real GDP growth rate or unemployment rate for
country i at year t, Dit is a dummy variable indicating a disease event hitting country i in year t, with Xit including country-level controls
such as Trade/GDP, Domestic Credit/GDP, population and log GDP per capita. We also include a decade dummy, U.S. recession dummy,
a banking crisis dummy and country fixed effects. Standard errors are corrected using Driscoll and Kraay (1998). One standard error
Zit −Zit−1
bands are shown. Each row divides countries based on the average of GDP across all six health episodes where t is the onset year of
it−1
each episode. Z refers to health expenditure. High refers to countries in the 75 percentile and above while low refers to countries in the
25 percentile and below.
well-designed fiscal policy should reduce the persistent negative effect from health crises.
In this section, we analyze the effects of fiscal policy during past health crises. Our
key indicator is a measure of countries’ fiscal adjustment in the onset year, the change in
government spending or revenues, divided by the previous year’s GDP. We focus on gov-
ernment health care spending, defined by the World Bank as “including healthcare goods
and services consumed but not including capital health expenditures such as buildings, ma-
chinery, IT and stocks of vaccines for emergency or outbreaks”.29 As Chang et al. (2019)
29 We also conducted the exercise on the basis of total government expenditures, in addition to health
28
note, government spending on health care is an important input for health policy globally.
To study the effectiveness of such spending, we separate countries into high adjustment
countries, defined as the 75th percentile and above, and low adjustment countries, defined
as the 25th percentile and below.30 We then re-estimate the model on the separate groups.
Figure 8 shows the impulse response functions for real GDP growth and unemploy-
ment for high and low adjustment countries. Both groups experience equally large impact
declines in GDP growth. However, high expenditure countries clearly bounce back more
robustly (Panel A) than low adjustment countries (Panel B). Those differential effects also
appear in unemployment. As seen in Panel C, the effect on unemployment in high health
expenditure adjustment countries is relatively small on impact, less than 1%, and not per-
sistent. In contrast, Panel D indicates that unemployment in low-adjustment countries is
persistently elevated after the shock.
The results above could be spurious if, for example, high adjustment countries also
happen to be low severity countries, in terms of cases or deaths. To investigate this, we
calculate the correlation between a country’s severity measure and its health spending ad-
justment, by episode. We report these results in the supplemental appendix Panel B of
Table S.7 and scatter plot of Figure S.4. The underlying data are displayed in Panel A of
Table S.7. We find a slight negative correlation, insignificantly different from zero.
What about government debt sustainability? Surely, debt to GDP will rise during a
health crisis, as GDP falls and fiscal policy expands. But we have found that by spending
more (perhaps through a higher debt), the economy can bounce-back more quickly than
it otherwise would. A faster recovery is thus likely to enhance rather than weaken debt
sustainability in the medium run. This argument is further strengthened in a low interest
rate environment. To examine the past responses of fiscal variables to health crisis shocks,
we generate impulse response functions for central government debt, the government bud-
get surplus, government spending, and government revenue in Figure S.3.31 Following
the shock, government revenue falls and spending increases, resulting in a negative fiscal
surplus and increase in debt. However, the negative fiscal surplus converges to an insignif-
icantly positive level two years after the shock, while the debt slowly adjusts to zero.
care spending, and find similar results. Results for the same exercise based on high versus low tax revenue
collection countries do not indicate significant differences. See Figure S.2 in the Online Supplement.
30 The grouping is based on the average fiscal adjustment measure across six episodes. This includes both
affected countries and unaffected countries.

31 Due to data availability, our sample size for this experiment is cut significantly, to 1,277 observations.
29
7 Conclusion
We study the economic impact of modern pandemics and epidemics. We estimate that the
typical health crisis lowers GDP growth in affected countries by nearly three percentage
points in the onset year and that this effect persists for at least five years. Unemployment
rises persistently too, with larger effects on females and the less educated. Health crises not
only lower output but also decrease consumption and investment spending. Furthermore,
international trade plummets, and this negatively affects other countries through trade link-
ages. Nevertheless, trading networks also benefit countries when there is bounce-back one
year after the onset of a health crisis. We also show that fiscal policy helps to mitigate
the effect of health crises. Increasing government spending, in particular on health care,
significantly speeds up GDP growth recovery and reduces unemployment after the crisis.
Although there are many parallels between these post-war disease episodes and COVID-
19, there is a lot to suggest that this pandemic will have a much larger toll on human lives.
The unprecedented scale of lock downs in several countries will hamper economic activity
even for countries that have lower severity or thwart the virus more quickly. There are
also reasons to think that COVID-19 will be considerably more recessionary. For one, U.S.
fiscal space is relatively limited now. If fiscal policy does not move enough, or with the
right mix, COVID-19 could have an even more persistent effect on output. Furthermore,
a restoration of robust international trade linkages remains an open question. Ominous
signs of backlash against China already appear. The sentiment for countries not to be so
reliant on imports, especially in sensitive sectors like medical supplies, may well prove an
intractable foe of trade. These considerations are fleshed out with estimates in Appendix C
assessing how different is this time with COVID-19.
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A Data Sources
Table A.1 List of Countries from WDI (Total Number: 210)
Aruba Bolivia Dominica Grenada Kiribati Malta Papua New Gu Slovak Repub Venezuela, R
Afghanistan Brazil Denmark Greenland St. Kitts an Myanmar Poland Slovenia British Virg
Angola Barbados Dominican Re Guatemala Korea, Rep. Montenegro Puerto Rico Sweden Virgin Islan
Albania Brunei Darus Algeria Guam Kuwait Mongolia Korea, Dem. Eswatini Vietnam
Andorra Bhutan Ecuador Guyana Lao PDR Mozambique Portugal Seychelles Vanuatu
United Arab Botswana Egypt, Arab Hong Kong SA Lebanon Mauritania Paraguay Syrian Arab Samoa
Argentina Central Afri Eritrea Honduras Liberia Mauritius West Bank an Turks and Ca Yemen, Rep.
Armenia Canada Spain Croatia Libya Malawi French Polyn Chad South Africa
American Sam Switzerland Estonia Haiti St. Lucia Malaysia Qatar Togo Zambia
Antigua and Chile Ethiopia Hungary Liechtenstei Namibia Romania Thailand Zimbabwe
Australia China Finland Indonesia Sri Lanka New Caledoni Russian Fede Tajikistan
Austria Cote d’Ivoir Fiji India Lesotho Niger Rwanda Turkmenistan
Azerbaijan Cameroon France Ireland Lithuania Nigeria Saudi Arabia Timor-Leste
35
Burundi Congo, Dem. Faroe Island Iran, Islami Luxembourg Nicaragua Sudan Tonga
Belgium Congo, Rep. Micronesia, Iraq Latvia Netherlands Senegal Trinidad and
Benin Colombia Gabon Iceland Macao SAR, C Norway Singapore Tunisia
Burkina Faso Comoros United Kingd Israel Morocco Nepal Solomon Isla Turkey
Bangladesh Cabo Verde Georgia Italy Monaco Nauru Sierra Leone Tuvalu
Bulgaria Costa Rica Ghana Jamaica Moldova New Zealand El Salvador Tanzania
Bahrain Cuba Gibraltar Jordan Madagascar Oman San Marino Uganda
Bahamas, The Cayman Islan Guinea Japan Maldives Pakistan Somalia Ukraine
Bosnia and H Cyprus Gambia, The Kazakhstan Mexico Panama Serbia Uruguay
Belarus Czech Republ Guinea-Bissa Kenya Marshall Isl Peru South Sudan United State
Belize Germany Equatorial G Kyrgyz Repub North Macedo Philippines Sao Tome and Uzbekistan
Bermuda Djibouti Greece Cambodia Mali Palau Suriname St. Vincent
Table A.2 Main Variable Construction
Variable Description Source

Pandemics-related Measures
Health Shock An indicator equals to one if a country is affected by six pan- Hand Collected
demics at health crisis year t and zero otherwise.
Mortality Rate The ratio of total deaths to total affected cases (in percentage) Hand Collected
for each affected countries at health crisis year t and zero for
those unaffected countries.
Cases/Pop The ratio of total affected cases to national population (in 10 Hand Collected
thousand) for each affected countries at health crisis year t and
zero for unaffected countries.
Country-level Measures
GDP growth rate Annual percentage growth rate of GDP based on constant local WDI
currency.
Unemployment rate The share of the labor force that is without work but available WDI
for and seeking employment (International Labour Organiza-
tion Estimate).
Tax Revenue (% GDP) Tax revenue refers to compulsory transfers to the central gov- WDI
ernment for public purposes. Certain compulsory transfers
such as fines, penalties, and most social security contributions
are excluded.
Expense (% of GDP) Expense is cash payments for operating activities of the gov- WDI
ernment in providing goods and services. It includes compen-
sation of employees (such as wages and salaries), interest and
subsidies, grants, social benefits, and other expenses such as
rent and dividends.
Current Health Expenditure (% of GDP) Level of current health expenditure expressed as a percent- WDI
age of GDP. Estimates of current health expenditures include
healthcare goods and services consumed during each year. This
indicator does not include capital health expenditures such as
buildings, machinery, IT and stocks of vaccines for emergency
or outbreaks.
Central Government Debt (% of GDP) Debt is the entire stock of direct government fixed-term con- WDI
tractual obligations to others outstanding on a particular date.
It includes domestic and foreign liabilities such as currency and
money deposits, securities other than shares, and loans. It is the
gross amount of government liabilities reduced by the amount
of equity and financial derivatives held by the government.
GDP Consensus Forecast Consensus forcasts of percentage growth rate of GDP at year t Consensus Econnomics Inc.
based on the end of year t − 1.
Trade/GDP The sum of exports and imports of goods and services mea- WDI
sured as a share of GDP at year t.
Domestic Credit/GDP Domestic credit to private sector by banks measured a share of WDI
GDP at year t.
Log(Population) The natural logarithm of total population based on the de facto WDI
definition of population at year t.
Log(GDP per capita) The natural logarithm of GDP per capita (measured as GDP WDI
divided by midyear population) in constant 2010 U.S. dollar at
year t.
Recession Dummy An indicator equals to one if year t is within the contractions NBER
of U.S. business cycle and zero for the expansions.
Banking Crisis Dummy An indicator equals to one if a country at year t is identified as Laeven and Valencia (2013)
systematic banking crisis and zero otherwise.
Quarterly GDP growth rate Quarterly percentage growth rate of GDP (seasonal adjusted) OECD National Accounts Statistics
based on same quarter at year t − 1 (YoY change).
36
B Figures
Figure A.1 Severity of Six Modern Health Crises and COVID-19: Total Affected Cases
COVID-19 in June 1, 2020
0~10
11~100
101~1000
1001~10000
10001~100000
100001+
1968 Flu SARS
Isolated
Regional 0~10
Widespread 11~100
101~1000
1001~10000
10001~100000
100001~1000000
H1N1 MERS
0~10 0~10
11~100 11~100
101~1000 101~1000
1001~10000
1001~10000
10001~100000
10001~100000
100001~1000000
100001~1000000
Ebola Zika
0~10 0~10
11~100 11~100
101~1000 101~1000
1001~10000 1001~10000
10001~100000 10001~100000
100001~1000000 100001~1000000
N OTE: This figure depicts the severity of health crisis episodes in our sample period and COVID-19. We classify economies into six
groups based on the reported cases. The data for 1968 Flu is available only by severity groupings: isolated, regional and widespread.
37
Figure A.2 Trade Network Intensity in Health Crisis Years
COVID-19 SARS
0~10 0~10
11~100 11~100
101~1000 101~1000
1001~10000 1001~10000
10001~100000 10001~100000
100001+ 100001+
H1N1 MERS
0~10 0~10
11~100 11~100
101~1000 101~1000
1001~10000 1001~10000
10001~100000 10001~100000
100001+ 100001+
Ebola Zika
0~10 0~10
11~100 11~100
101~1000 101~1000
1001~10000 1001~10000
10001~100000 10001~100000
100001+ 100001+
N OTE: This figure depicts the trade network intensity measure using both ex-post cases and bilateral trade data. For each country’s
severity, we weight its trading partners’ case number using the bilateral trade share. Due to data limitation, we use the trade data in 2018
and the reported number of cases for COVID-19 as of June 1, 2020 to construct the COVID panel.
38
C Covid-19: This time is different, but how different?
There are many reasons to think that COVID-19 will have larger effects on the world econ-
omy than our historical disease episodes. The current pandemic has more infection cases
and deaths than the typical historical episode, and COVID-19 has spread to more countries.
For example, the total confirmed case number of nearly 10 million, to date, exceeds total
cases in all other episodes combined (total cases in 1968 Flu are not known but are esti-
mated to 1 million worldwide as in Jordà et al. (2020)). Moreover, there is a worldwide
lock-down policy designed to contain COVID-19 (termed the “Great Lockdown” by the
IMF). Although regional travel bans have been used in previous health crises, according to
Mateus et al. (2014), national lockdowns as under COVID-19 are unprecedented (detailed
information is displayed in Online Supplement Table S.2). These restrictions have no doubt
“flattened the curve” but also crippled economic activity worldwide, at least in the short run
(Gourinchas (2020)). From the perspective of economic structure, there are several reasons
why the impact of COVID-19 might be larger. First, many countries have shifted from agri-
culture to the industry and services sectors. Second, trade linkages between countries have
increased (see Figure A.2 for an illustration). A more intertwined world through global
value/supply chains makes COVID-19 economically more contagious.
We use our estimates from the historical episodes, juxtaposed against current forecasts
of the effects of COVID-19 from the IMF, World Bank, OECD, Consensus Forecasts, and
the FOMC’s Summary of Economic Projections, to gauge just how different “this time”
might be. We begin with a simple projection for GDP growth in 2020 and 2021 using our
estimates from the historical episodes. We report three cases of GDP growth for: world,
advanced economies, and the United States. Because COVID is more severe than the av-
erage historical episode, we base the projections on estimates of the high severity dummy
from our severity specifications. We use estimates for the onset year and one year later (see
Figure S.1 and Table A.3). We make projections for the world and the advanced economies
separately, from estimates using our full sample and advanced economies sample, respec-
tively. We use estimates from the advanced economies sample to form our U.S. projection.
The projection for 2020 world GDP growth rate based on the historical disease episodes,
labeled MRZ, is -3.5%. As seen in the table, this is non-trivially less gloomy than the IMF,
World Bank, CF, and especially the OECD forecast of -7.1%. For the bounce-back year
of 2021, and again under the assumption that this crisis were the same as the average ”se-
vere” historical episode, GDP growth would be around one percent, as seen from the MRZ
39
Table A.3 Institutions’ GDP Growth Forecasts for 2020-21 and
Projections Based on Six Historical Crisis Episodes (MRZ)
World
MRZ IMF World Bank OECD CF
2020 -3.5 -5.0 -5.5 -7.1 -4.1
(1.1)
2021 0.9 5.4 4.2 4.2 5.1
(0.5)
Advanced
MRZ IMF World Bank OECD CF
2020 -3.3 -8.1 -7.0 -10.0 -7.0
(1.2)
2021 1.6 4.8 3.9 4.4 5.2
(0.4)
U.S.
MRZ IMF World Bank OECD CF FRB
2020 -2.8 -8.0 -6.1 -7.6 -5.4 -6.5
(1.2) [-10.0, -4.2]
2021 1.4 4.5 4.00 2.1 4.3 5.0
(0.4) [-1.0, 7.0]
N OTE: The institutional forecasts are taken from: June 2020 World Economic Outlook (IMF); June 2020 Global Economic Prospects
(World Bank); May 2020 Economic Outlook (OECD); May 2020 issue of Consensus Forecasts (CF); Jun 10 Summary of Economic
Projections following the FOMC meeting (FRB), where we report both the median estimate and the range. The MRZ estimates are taken
from the coefficient on the high mortality rate dummy, defined as the top 30% of country mortality rates in each episode. For the world
(advanced economies) estimates, we use the full sample (advanced economy sample) of countries. For the U.S., we adjust the point
estimate from the advanced economies sample by their relative average growth rates, U.S. versus advanced economies, while keeping
the standard deviation the same.
projection. Recovery in world GDP growth is projected to be much higher by the institu-
tional forecasters. This optimism could come from the assumption that policymakers are
doing whatever it takes to contain COVID-19, or at least much more than in past crises, as
the current low interest rate environment may make governments more willing to increase
spending. As noted above, bounce-back that is stronger than in previous episodes could
also be the result of the magnification effects of stronger trade linkages. The projection
for advanced economies and U.S. based on the historical episodes is around -3% for 2020
and +1.5% for 2021. These history-based projections are around one-half to one-third of
the magnitude, both up and down, being predicted for COVID-19, though the range of es-
timates from the FRB is rather wide. Overall, consistent with intuition, this time is seen to
be different by prominent forecasters.
40
Online Supplement to
‘Modern Pandemics: Recession and Recovery’
by C. Ma, and J. Rogers, and S. Zhou
June 2020
S.1 Figures
Figure S.1 Effects of Health Crises on GDP by Severity
2
High Case Rate
Medium Case Rate
Percent Low Case Rate
-4
0 1 2 3 4 5
Years
2
High Mortality Rate

Medium Mortality Rate
Low Mortality Rate
Percent
-4
0 1 2 3 4 5
Years
∑4j=1 βHj git− j + ∑4s=0 δH H 4 H M 4 H L
s Dit−s + ∑s=0 γsDit−s + ∑s=0 µs Dit−s + Xit + εit , with H = 0, 1, · · · , 5, where git is the annual real GDP growth
rate for country i at year t, DH M L
it Dit , Dit is a dummy variable indicating a high (medium, low) mortality rate or cases per population rate
for an affected country i in year t, with Xit including country-level controls such as Trade/GDP, Domestic Credit/GDP, population and
log GDP per capita. We also include a decade dummy, US recession dummy, a banking crisis dummy and country fixed effects. Standard
errors are corrected using Driscoll and Kraay (1998). The blue line represents low, the green dash-dotted line represents medium and
the red dashed line represents high. One standard error bands are shown.
S.1
Figure S.2 Effect on GDP Growth Conditional on Immediate Fiscal Response:
Results for General Expenditures and Tax Revenues
Panel A: High Expenditure Response Panel B: Low Expenditure Response

3
3
2
2
1
1
0
0
Percent
Percent
-1
-1
-2
-2
-3
-3
-4
-4
0 1 2 3 4 5 0 1 2 3 4 5
Years Years
Panel C: High Tax Response Panel D: Low Tax Response

3
3
2
2
1
1
0
0
Percent
Percent
-1
-1
-2
-2
-3
-3
-4
-4
0 1 2 3 4 5 0 1 2 3 4 5
Years Years
∑4s=1 βH 4 H
s git−s + ∑s=0 δs Dit−s + Xit + εit , with H = 0, 1, · · · , 5, where git is the annual real GDP growth rate for country i at year t, Dit
is a dummy variable indicating a disease event hitting country i in year t, with Xit including country-level controls such as Trade/GDP,
Domestic Credit/GDP, population and log GDP per capita. We also include a decade dummy, U.S. recession dummy, a banking crisis
dummy and country fixed effects. Standard errors are corrected using Driscoll and Kraay (1998). One standard error bands are shown.
Zit −Zit−1
Each row divides countries based on the average of GDP across all six health episodes where t is the onset year of each episode. Z
it−1
refers to fiscal spending in Panel A and B, and tax revenue in Panel C and D. High refers to countries in the 75 percentile and above
while low refers to countries in the 25 percentile and below.
S.2
Figure S.3 Effect on Government Budget
Panel A: Central Government Debt (% GDP) Panel B: Fiscal Surplus (% GDP)

8
1
6
0
Percent
Percent
4
-1
2
-2
0
-3
0 1 2 3 4 5 0 1 2 3 4 5
Years Years
Panel C: Government Spending (% GDP) Panel D: Government Revenue (% GDP)

1.5
.5
1
0
Percent
Percent
.5
-.5
0
-1
-.5
0 1 2 3 4 5 0 1 2 3 4 5
Years Years
∑4s=1 βH 4 H
s yit−s + ∑s=0 δs Dit−s + Xit + εit , with H = 0, 1, · · · , 5, where yit is the annual central government debt (% GDP), fiscal surplus
(% GDP), government spending (% GDP) or government revenue (% GDP) for country i at year t, Dit is a dummy variable indicating a
disease event hitting country i in year t, with Xit including country-level controls such as Trade/GDP, Domestic Credit/GDP, population
and log GDP per capita. We also include a decade dummy, U.S. recession dummy, a banking crisis dummy and country fixed effects.
Standard errors are corrected using Driscoll and Kraay (1998). One standard error bands are shown.
S.3
Figure S.4 Health Spending and Crisis Severity
Panel A: Health Spending Adjustment and Mortality Rate

.04
Health Spending Adjustment (% GDP)
0 .01 .02
-.01 .03
0 20 40 60 80 100
Mortality Rate (%)
Panel B: Health Spending Adjustment and Case Rate

.04
Health Spending Adjustment (% GDP)
0 .01 .02
-.01 .03
0 1 2 3
Case/Pop Rate
N OTE: Panel A plots the relationship between health spending adjustment (defined as the change of health spending in the onset year
normalized by the previous year’s GDP) and the mortality rate, for all episodes in affected countries. The regression line has a slope of
-0.000012 with t-stat at -0.59. Panel B plots the relationship between health spending adjustment and the case rate for all the episodes in
affected countries. The regression line has a slope of 0.0009 with t-stat at 0.55.
S.4
S.2 Data Sources
Table S.1 List of Global Pandemic and Epidemic Events

Announcement Time Event Name Affected Countries (Economies) # of Affected Countries (in matched sample) Total Deaths Total Cases Average Mortality Rate
1968/07 Hongkong Flu ARG, AUS, CHL, DNK, FIN, FRA, GBR, GRC, HKG, 18 N.A. N.A. N.A.
ITA, JAM, JPN, NLD, NOR, PRT, SWE, USA, ZAF
2003/02 SARS AUS, CAN, CHE, CHN, DEU, ESP, FRA, GBR, HKG, 28 737 7750 9.51%
IDN, IND, IRL, ITA, KOR, KWT, MAC, MNG, MYS,
NZL, PHL, ROU, RUS, SGP, SWE, THA, USA, VNM,
ZAF
2009/04 H1N1 AGO, ALB, AND, ARE, ARG, ASM, AUS, AUT, AZE, 167 14390a 526353 2.73%
BDI, BEL, BGD, BGR, BHR, BHS, BIH, BLR, BLZ,
BMU, BOL, BRA, BRB, BRN, BTN, BWA, CAN, CHE,
CHL, CHN, CIV, CMR, COD, COG, COL, CPV, CRI,
CUB, CYM, CYP, CZE, DEU, DMA, DNK, DOM, DZA,
ECU, EGY, ESP, ETH, FIN, FJI, FRA, FSM, GAB, GBR,
GEO, GHA, GRC, GRD, GTM, GUM, GUY, HND, HRV,
HTI, HUN, IDN, IND, IRL, IRN, IRQ, ISL, ISR, ITA,
JAM, JOR, JPN, KAZ, KEN, KHM, KIR, KNA, KOR,
KWT, LAO, LBN, LBY, LCA, LIE, LKA, LSO, LUX,
MAR, MDA, MDG, MDV, MEX, MHL, MKD, MLI,
MLT, MMR, MNE, MNG, MOZ, MUS, MWI, MYS,
NAM, NGA, NIC, NLD, NOR, NPL, NRU, NZL, OMN,
PAK, PAN, PER, PHL, PLW, PNG, POL, PRI, PRT, PRY,
PSE, QAT, ROU, RUS, RWA, SAU, SDN, SGP, SLB,
SLV, SRB, STP, SUR, SVK, SVN, SWE, SWZ, SYC,
S.5
TCD, THA, TJK, TLS, TON, TTO, TUN, TUR, TUV,

TZA, UGA, URY, USA, VCT, VEN, VNM, VUT, WSM,
YEM, ZAF, ZMB, ZWE
2012/03 MERS ARE, AUT, CHN, DEU, DZA, EGY, FRA, GBR, GRC, 26 498 1289 38.63%
IRN, ITA, JOR, KOR, KWT, LBN, MYS, NLD, OMN,
PHL, QAT, SAU, THA, TUN, TUR, USA, YEM
2014/08b Ebola ESP, GBR, GIN, ITA, LBR, MLI, NGA, SEN, SLE, USA 10 11323 28646 39.53%
2016/02c Zika ABW, ARG, ATG, BHS, BLZ, BOL, BRA, BRB, CAN, 38 20 197689 0.01%
CHL, COL, CRI, CUB, CYM, DMA, DOM, ECU, GRD,
GTM, GUY, HND, HTI, JAM, KNA, LCA, NIC, PAN,
PER, PRI, PRY, SLV, SUR, TCA, TTO, URY, USA, VCT,
VIR
a This estimates are from European Center for Disease Prevention and Controls (ECDC). We use their estimates since they provides detailed coverage and mortality rate for each country.
Detailed information can be found here: https://en.wikipedia.org/wiki/2009_flu_pandemic_by_country. However, the estimate from US Centers for Disease Control and Prevention
(CDC) for global death troll is 284,000, about 15 times more than the number of laboratory-confirmed cases. See details in http://www.cidrap.umn.edu/news-perspective/2012/06/
cdc-estimate-global-h1n1-pandemic-deaths-284000.
b The West African Ebola outbreak began December 26, 2013 and was declared a PHEIC August 8, 2014.
c The Zika virus outbreak occurred at October, 2015 but was declared a PHEIC February 1, 2016
Table S.2 Details of Six Pandemic and Epidemic Events
Episodes Vaccine/Cure Government Response

1968 Flu “Split vaccine” developed in 1968 The 1968 Flu spread widely as a result of international air travel, but the effects surfaced differently in different regions
— the US and Canada experienced a severe initial wave with less a severe subsequent wave, while the reverse held true
for Europe and Asia. In North America, where the burden of the flu was relatively small in comparison to in Europe
and Asia, government relied on vaccination, hospitalization, and antibiotics to treat secondary pneumonia. Quarantines,
closures, and other non-pharmaceutical means of intervention were not quite necessary to curb the disease.
SARS No cure Efforts to suppress SARS included isolation of symptomatic patients and rigid hospital infection control practices. The
latter proved to be particularly effective in the 2003 SARS pandemic in hospitals in Hong Kong SAR, China, in which
none of the health care workers wearing proper PPE ever contracted SARS. Governments mainly utilized containment
measures which mirrored those used to rid of bubonic plagues — case tracking, quarantining those infected, bans on large
gatherings, examination of travelers, improved PPE and barrier protection. These measures, working in tandem with
travel restrictions, successfully curbed SARS likely because SARS is characterized by an insignificant asymptomatic
carrier state and relatively shorter incubation periods.
H1N1 Vaccine released in October of 2009 In response to the outbreak of the Swine Flu, several countries’ governments focused on restricting travel amongst
infected regions. Additionally, private and public sector workers were advised to implement preventative measures, and
schools were closed in areas of outbreak. China reverted to using the same measures it used to fight SARS, notably
quarantining any and all persons who were possibly infected by H1N1. Moreover, many countries placed embargos on
imports of pork from Mexico and the US. Airport screening was also implemented during this time. However, it has been
S.6
shown that travel restrictions with regards to curbing influenza are only effective in delaying the spread and peak of the
disease. Extensive travel restrictions are required to have significant impact on curbing influenza.
Mers No available vaccine or specific treatment The CDC collaborated with the World Health Organization, and began responding to the Mers crisis before it reached
the US. Key areas of focus included epidemiology, laboratory science, travelers’ health, and infection control. Another
was collaboration within countries and between countries. The CDC brought about data-sharing agreements between
countries and promoted global sharing of specimens and reagents to deliver an effective response to the disease.
Ebola No known vaccine/treatment The hardest-hit countries imposed certain measures to curb the devastation of Ebola. In general, health agencies and
hospitals relied on isolation of symptomatic patients, quarantining, and bolstering of hospital infection control practices to
combat Ebola. Some countries were better equipped than others to execute disease prevention –— Nigeria had experience
running an emergency operations center and utilizing global positioning systems for contact tracing during previous polio
eradication efforts. Ultimately, putting an end to Ebola required a multinational effort, with the World Bank’s Pandemic
Emergency Financing Facility (PEF) contributing US$3.8 billion to help with the costs of Ebola, and the World Bank
Group pooling US$1.6 billion from the International Development Association and the International Finance Corporation
to put towards economic recovery in Guinea, Liberia, and Sierra Leone.
Zika No vaccine/specific treatment In response to the outbreak, governments including those of the US and the UK declared travel precautions, advising
pregnant women, in particular, to avoid travelling to countries affected by Zika. Control measures such as insect bite
precautions and removal of possible breeding grounds for mosquitos were implemented, as well as regulatory reporting
on recommendations regarding Zika and pharmaceutical intervention.
N OTE: The note relies on information mainly from Jamison et al. (2017), Mateus et al. (2014), Chang et al. (2016), Williams et al. (2015), Saunders-Hastings and Krewski (2016) and online
information from https://graduateinstitute.ch/communications/news/brief-international-history-pandemics.
Table S.3 Quarterly GDP Country Coverage
Country Code Country Name Start Quarter End Quarter Country Code Country Name Start Quarter End Quarter
ARG Argentina 1994Q1 2018Q4 ISL Iceland 1961Q1 2018Q4
AUS Australia 1961Q1 2018Q4 ISR Israel 1996Q1 2018Q4
AUT Austria 1961Q1 2018Q4 ITA Italy 1961Q1 2018Q4
BEL Belgium 1961Q1 2018Q4 JPN Japan 1961Q1 2018Q4
BGR Bulgaria 1996Q1 2018Q4 KOR Korea, Rep. 1961Q1 2018Q4
BRA Brazil 1997Q1 2018Q4 LTU Lithuania 1996Q1 2018Q4
CAN Canada 1962Q1 2018Q4 LUX Luxembourg 1961Q1 2018Q4
CHE Switzerland 1961Q1 2018Q4 LVA Latvia 1996Q1 2018Q4
CHL Chile 1996Q1 2018Q4 MEX Mexico 1961Q1 2018Q4
CHN China 2011Q1 2018Q4 NLD Netherlands 1961Q1 2018Q4
COL Colombia 2006Q1 2018Q4 NOR Norway 1961Q1 2018Q4
CZE Czech Republ 1995Q1 2018Q4 NZL New Zealand 1988Q2 2018Q4
DEU Germany 1961Q1 2018Q4 POL Poland 1996Q1 2018Q4
DNK Denmark 1961Q1 2018Q4 PRT Portugal 1961Q1 2018Q4
ESP Spain 1961Q1 2018Q4 ROU Romania 1996Q1 2018Q4
EST Estonia 1996Q1 2018Q4 RUS Russian Fede 2004Q1 2018Q4
FIN Finland 1961Q1 2018Q4 SAU Saudi Arabia 2010Q1 2018Q4
FRA France 1961Q1 2018Q4 SVK Slovak Repub 1994Q1 2018Q4
GBR United Kingd 1960Q1 2018Q4 SVN Slovenia 1996Q1 2018Q4
GRC Greece 1961Q1 2018Q4 SWE Sweden 1961Q1 2018Q4
HUN Hungary 1996Q1 2018Q4 TUR Turkey 1999Q1 2018Q4
IDN Indonesia 1991Q1 2018Q4 USA United State 1960Q1 2018Q4
IND India 1997Q2 2018Q4 ZAF South Africa 1961Q1 2018Q4
IRL Ireland 1961Q1 2018Q4
Table S.4 Country-level Data: Summary Statistics
Variables N mean p50 sd p75 p25

GDP growth rate % 8,991 3.76 3.80 4.11 1.00 6.00
Unemployment rate % 5208 8.19 6.65 6.32 11.16 3.59
GDP Consensus Forecast % 612 2.57 2.44 2.02 1.55 3.38
Quarterly GDP growth rate % 7,876 3.33 3.24 3.51 1.49 5.22
Quarterly GDP Consensus Forecast % 1,552 2.93 2.61 1.78 1.93 3.42
Trade/GDP % 8,261 67.43 59.00 49.72 36.96 87.77
Domestic Credit/GDP % 7,605 33.78 23.00 39.23 12.00 45.00
Log(Population) 12,202 8.26 4.29 5.95 3.37 15.06
Log(GDP per capita) 9,172 5.97 5.51 2.82 3.40 8.46
Recession Dummy 12,272 0.27 0.00 0.44 0.00 1.00
Banking Crisis Dummy 12,272 0.01 0.00 0.11 0.00 0.00
Tax Change % 3,680 8.06 1.80 16.79 0.54 5.08
Expenditure Change % 3,464 8.58 2.36 16.95 0.84 5.92
Health Change % 2,947 0.63 0.50 0.61 0.24 0.90
S.7
Table S.5 Pre-trend Analysis
GDP growth rate %

(1) (2) (3)
Sample Period: 1960-2018 1990-2018 1960-2018
Shock (-1) -0.18 -0.12 -0.17
(0.37) (0.43) (0.49)
Shock -2.56** -2.55* -2.60*
(1.22) (1.27) (1.30)
Shock (+1) 0.49* 0.47* 0.63*
(0.25) (0.25) (0.31)
Shock (+2) 0.55*** 0.59*** 0.59***
(0.14) (0.13) (0.20)
Health Expenditure (Lagged) 0.16
(0.11)
Trade/GDP 0.17 0.54 2.82***
(0.22) (0.46) (0.48)
Domestic Credit/GDP -0.66* -0.70 -0.50
(0.38) (0.46) (0.43)
Log(Population) 0.19*** 0.15*** 0.97
(0.04) (0.05) (2.57)
Log(GDP per capita) -0.36*** -0.30*** 2.72**
(0.08) (0.10) (1.24)
Recession -0.35 -0.50 -1.08**
(0.25) (0.44) (0.48)
Banking Crisis -1.28*** -1.38*** -2.22**
(0.32) (0.37) (1.02)
Constant 4.80*** 4.71*** -36.28
(0.49) (0.52) (45.87)
Observations 6348 4158 2708
Within R-square 0.058 0.067 0.131
Decade FE Yes Yes Yes
Country FE Yes Yes Yes
N OTE: This table estimates a panel regression with four dummy variables that flags one year before the
health crises, the onset year, one year after and two years after the health crises. We also add a lagged health
expenditure (% GDP ) as a control in column (3). ∗ , ∗∗ and ∗∗∗ indicate statistical significance at the 10%,
5%, and 1% level, respectively.
S.8
Table S.6 The Effect of Health Crises on Real GDP Growth:
Weighted by Disease Severity
GDP growth rate %

(1) (2) (3) (4) (5) (6)
Sample Period: 1960-2018 1990-2018 1960-2018 1990-2018
Mortality Rate -3.62* -3.42* -5.85***
(1.94) (1.86) (1.42)
Cases/Pop -3.36*** -3.20*** -5.46***
(1.11) (1.13) (0.98)
(0.14) (0.16)
Trade/GDP 0.19 0.52 0.83 0.18 0.50 0.75
(0.22) (0.38) (0.67) (0.21) (0.38) (0.63)
Domestic Credit/GDP -0.71* -0.75 -1.64 -0.71* -0.75 -1.45
(0.42) (0.50) (1.10) (0.40) (0.48) (1.04)
Log(Population) 0.17*** 0.12* 0.06 0.17*** 0.11* 0.05
(0.03) (0.06) (0.05) (0.03) (0.06) (0.05)
Log(GDP per capita) -0.33*** -0.23* -0.05 -0.32*** -0.22* -0.03
(0.08) (0.13) (0.14) (0.07) (0.12) (0.14)
Recession -0.51* -0.83* -0.75 -0.48* -0.77* -0.53
(0.27) (0.45) (0.66) (0.25) (0.41) (0.58)
Banking Crisis -1.26*** -1.30*** 1.12 -1.27*** -1.31*** 0.97
(0.37) (0.47) (0.97) (0.36) (0.46) (0.92)
Constant 4.62*** 4.58*** 1.98*** 4.61*** 4.54*** 1.80***
(0.45) (0.51) (0.51) (0.45) (0.50) (0.49)
Observations 6522 4296 530 6525 4299 530
Within R2 0.042 0.039 0.134 0.045 0.044 0.156
N OTE: The dependent variable is real annual GDP growth rate. The sample period for columns (1) and (4)
is 1960-2018 while the sample period for columns (2)-(3) and (5)-(6) is 1990-2018. Country and decade
fixed effects are included. All standard errors are corrected using Driscoll and Kraay (1998) and reported in
parentheses. ∗ , ∗∗ and ∗∗∗ indicate statistical significance at the 10%, 5%, and 1% level, respectively.
S.9
Table S.7 Disease Severity and Health Expenditure Response Dummy
Panel A: Disease Severity and Health Expenditure Response Dummy
1968Flu SARS H1N1 MERS Ebola Zika
Country Name Country Mortality Case/Pop Health Expendi- Mortality Case/Pop Health Expendi- Mortality Case/Pop Health Mortality Case/Pop Health Mortality Case/Pop Health Mortality Case/Pop Health
Code Rate ture Rate ture Rate Expenditure Rate Expenditure Rate Expenditure Rate Expenditure
Aruba ABW 0 0 N.A. 0 0 N.A. 1 3 N.A. 0 0 N.A. 0 0 N.A. 1 2 N.A.
Afghanistan AFG 0 0 N.A. 0 0 2 2 2 2 0 0 2 0 0 2 0 0 2
Angola AGO 0 0 N.A. 0 0 2 1 1 1 0 0 1 0 0 1 0 0 2
Albania ALB 0 0 N.A. 0 0 2 3 1 1 0 0 1 0 0 2 0 0 1
Andorra AND 0 0 N.A. 0 0 2 0 1 1 0 0 1 0 0 1 0 0 2
United Arab ARE 0 0 N.A. 0 0 1 3 1 1 2 3 1 0 0 1 0 0 1
Argentina ARG 1 1 N.A. 0 0 2 3 3 2 0 0 2 0 0 2 1 1 2
Armenia ARM 0 0 N.A. 0 0 2 0 0 1 0 0 2 0 0 2 0 0 1
American Sam ASM 0 0 N.A. 0 0 N.A. 1 3 N.A. 0 0 N.A. 0 0 N.A. 0 0 N.A.
Antigua and ATG 0 0 N.A. 0 0 1 1 2 1 0 0 1 0 0 2 1 2 1
Australia AUS 3 3 N.A. 1 2 1 2 3 2 0 0 2 0 0 2 0 0 1
Austria AUT 0 0 N.A. 0 0 1 1 2 1 1 2 2 0 0 1 0 0 2
Azerbaijan AZE 0 0 N.A. 0 0 2 3 1 2 0 0 2 0 0 2 0 0 2
Burundi BDI 0 0 N.A. 0 0 1 1 1 2 0 0 1 0 0 1 0 0 2
Belgium BEL 0 0 N.A. 0 0 2 1 1 2 0 0 1 0 0 1 0 0 1
Benin BEN 0 0 N.A. 0 0 1 0 0 1 0 0 2 0 0 1 0 0 1
Burkina Faso BFA 0 0 N.A. 0 0 1 0 0 2 0 0 1 0 0 1 0 0 2
Bangladesh BGD 0 0 N.A. 0 0 1 2 1 1 0 0 1 0 0 1 0 0 1
Bulgaria BGR 0 0 N.A. 0 0 2 3 1 1 0 0 2 0 0 2 0 0 2
Bahrain BHR 0 0 N.A. 0 0 2 2 3 1 0 0 2 0 0 1 0 0 1
S.10
Bahamas, The BHS 0 0 N.A. 0 0 1 3 2 1 0 0 1 0 0 1 1 2 2

Bosnia and H BIH 0 0 N.A. 0 0 2 3 2 1 0 0 1 0 0 1 0 0 1
Belarus BLR 0 0 N.A. 0 0 2 0 0 1 0 0 2 0 0 2 0 0 2
Belize BLZ 0 0 N.A. 0 0 2 1 2 2 0 0 1 0 0 1 1 2 2
Bermuda BMU 0 0 N.A. 0 0 N.A. 3 2 N.A. 0 0 N.A. 0 0 N.A. 1 2 N.A.
Bolivia BOL 0 0 N.A. 0 0 2 2 3 2 0 0 2 0 0 2 1 1 2
Brazil BRA 0 0 N.A. 0 0 2 3 2 2 0 0 2 0 0 2 3 3 2
Barbados BRB 0 0 N.A. 0 0 2 2 3 1 0 0 2 0 0 1 1 2 1
Brunei Darus BRN 0 0 N.A. 0 0 1 2 3 1 0 0 1 0 0 1 0 0 1
Bhutan BTN 0 0 N.A. 0 0 1 1 1 2 0 0 2 0 0 1 0 0 1
Botswana BWA 0 0 N.A. 0 0 2 1 1 2 0 0 2 0 0 2 0 0 2
Central Afri CAF 0 0 N.A. 0 0 1 0 0 2 0 0 2 0 0 2 0 0 1
Canada CAN 0 0 N.A. 3 3 2 3 3 2 0 0 1 0 0 1 1 1 1
Switzerland CHE 3 3 N.A. 1 2 1 2 2 1 0 0 1 0 0 1 0 0 2
Chile CHL 3 3 N.A. 0 0 2 2 3 2 0 0 2 0 0 2 1 1 2
China CHN 0 0 N.A. 2 3 2 2 2 2 1 1 2 0 0 2 0 0 2
Cote d’Ivoir CIV 0 0 N.A. 0 0 1 1 1 1 0 0 2 0 0 2 0 0 1
Cameroon CMR 0 0 N.A. 0 0 1 1 1 1 0 0 2 0 0 2 0 0 1
Congo, Dem. COD 0 0 N.A. 0 0 2 1 1 2 0 0 2 0 0 2 0 0 1
Congo, Rep. COG 0 0 N.A. 0 0 1 1 1 1 0 0 2 0 0 1 0 0 2
Colombia COL 0 0 N.A. 0 0 2 3 2 2 0 0 1 0 0 1 1 2 1
Comoros COM 0 0 N.A. 0 0 1 0 0 1 0 0 1 0 0 1 0 0 1
Cabo Verde CPV 0 0 N.A. 0 0 1 1 2 1 0 0 2 0 0 1 0 0 1
Costa Rica CRI 0 0 N.A. 0 0 2 2 3 2 0 0 1 0 0 2 1 2 1
Cuba CUB 0 0 N.A. 0 0 1 3 2 2 0 0 1 0 0 2 1 1 1
Cayman Islan CYM 0 0 N.A. 0 0 N.A. 2 3 N.A. 0 0 N.A. 0 0 N.A. 1 3 N.A.
Cyprus CYP 0 0 N.A. 0 0 1 1 3 1 0 0 1 0 0 1 0 0 2
Czech Republ CZE 0 0 N.A. 0 0 2 3 2 2 0 0 1 0 0 1 0 0 1
Germany DEU 3 3 N.A. 1 2 1 2 3 2 2 2 1 0 0 2 0 0 2
Djibouti DJI 0 0 N.A. 0 0 N.A. 1 1 N.A. 0 0 N.A. 0 0 1 0 0 1
Dominica DMA 0 0 N.A. 0 0 1 1 3 2 0 0 1 0 0 1 1 3 1
Denmark DNK 3 3 N.A. 0 0 1 1 2 2 0 0 1 0 0 1 0 0 2
Dominican Re DOM 0 0 N.A. 0 0 2 3 2 2 0 0 2 0 0 2 1 1 2
Disease Severity and Health Expenditure Response Dummy (Cont.)
Algeria DZA 0 0 N.A. 0 0 1 3 1 2 2 2 2 0 0 2 0 0 1
Ecuador ECU 0 0 N.A. 0 0 2 3 2 2 0 0 2 0 0 2 1 2 1
Egypt, Arab EGY 0 0 N.A. 0 0 1 2 2 2 1 1 2 0 0 2 0 0 2
Eritrea ERI 0 0 N.A. 0 0 2 0 0 2 0 0 N.A. 0 0 N.A. 0 0 N.A.
Spain ESP 0 0 N.A. 1 1 2 2 2 1 0 0 1 1 2 1 0 0 1
Estonia EST 0 0 N.A. 0 0 2 3 2 1 0 0 1 0 0 2 0 0 2
Ethiopia ETH 0 0 N.A. 0 0 2 1 1 2 0 0 2 0 0 2 0 0 2
Finland FIN 1 1 N.A. 0 0 1 1 2 1 0 0 2 0 0 1 0 0 1
Fiji FJI 0 0 N.A. 0 0 1 1 3 1 0 0 1 0 0 2 0 0 1
France FRA 2 2 N.A. 3 2 1 3 1 1 2 1 1 0 0 1 0 0 1
Faroe Island FRO 0 0 N.A. 0 0 N.A. 0 0 N.A. 0 0 N.A. 0 0 N.A. 0 0 N.A.
Micronesia, FSM 0 0 N.A. 0 0 2 1 3 2 0 0 1 0 0 1 0 0 2
Gabon GAB 0 0 N.A. 0 0 1 1 1 1 0 0 1 0 0 1 0 0 2
United Kingd GBR 3 3 N.A. 1 1 2 2 3 2 3 2 1 1 1 1 0 0 1
Georgia GEO 0 0 N.A. 0 0 2 0 0 2 0 0 2 0 0 2 0 0 2
Ghana GHA 0 0 N.A. 0 0 2 2 1 2 0 0 2 0 0 2 0 0 1
Gibraltar GIB 0 0 N.A. 0 0 N.A. 1 3 N.A. 0 0 N.A. 0 0 N.A. 0 0 N.A.
Guinea GIN 0 0 N.A. 0 0 1 0 0 1 0 0 1 3 3 2 0 0 2
Gambia, The GMB 0 0 N.A. 0 0 2 0 0 2 0 0 2 0 0 1 0 0 1
Guinea-Bissa GNB 0 0 N.A. 0 0 1 0 0 1 0 0 1 0 0 2 0 0 1
Equatorial G GNQ 0 0 N.A. 0 0 1 0 0 1 0 0 1 0 0 1 0 0 1
Greece GRC 2 2 N.A. 0 0 2 3 2 1 3 2 1 0 0 1 0 0 1
Grenada GRD 0 0 N.A. 0 0 1 1 2 1 0 0 1 0 0 1 1 3 2
Greenland GRL 0 0 N.A. 0 0 N.A. 0 0 N.A. 0 0 N.A. 0 0 N.A. 0 0 N.A.
Guatemala GTM 0 0 N.A. 0 0 2 2 2 1 0 0 1 0 0 2 1 2 2
Guam GUM 0 0 N.A. 0 0 N.A. 2 3 N.A. 0 0 N.A. 0 0 N.A. 0 0 N.A.
Guyana GUY 0 0 N.A. 0 0 1 1 2 2 0 0 2 0 0 1 1 2 1
Hong Kong SA HKG 1 1 N.A. 3 3 N.A. 0 0 N.A. 0 0 N.A. 0 0 N.A. 0 0 N.A.
Honduras HND 0 0 N.A. 0 0 2 2 2 2 0 0 2 0 0 2 1 1 2
Croatia HRV 0 0 N.A. 0 0 2 2 3 1 0 0 1 0 0 1 0 0 1
S.11
Haiti HTI 0 0 N.A. 0 0 2 1 1 2 0 0 1 0 0 2 1 1 2

Hungary HUN 3 3 N.A. 0 0 2 3 2 1 0 0 1 0 0 1 0 0 2
Indonesia IDN 0 0 N.A. 1 1 1 2 1 1 0 0 1 0 0 2 0 0 1
India IND 0 0 N.A. 1 1 1 3 2 2 0 0 2 0 0 1 0 0 2
Ireland IRL 0 0 N.A. 1 2 2 2 3 1 0 0 1 0 0 1 0 0 1
Iran, Islami IRN 0 0 N.A. 0 0 2 2 2 2 2 2 2 0 0 N.A. 0 0 N.A.
Iraq IRQ 0 0 N.A. 0 0 N.A. 2 2 1 0 0 1 0 0 1 0 0 1
Iceland ISL 0 0 N.A. 0 0 2 2 3 2 0 0 1 0 0 2 0 0 2
Israel ISR 0 0 N.A. 0 0 1 3 3 1 0 0 2 0 0 2 0 0 1
Italy ITA 2 2 N.A. 1 1 1 2 2 1 1 1 1 1 1 1 0 0 1
Jamaica JAM 1 1 N.A. 0 0 1 3 2 1 0 0 1 0 0 1 1 2 2
Jordan JOR 0 0 N.A. 0 0 1 2 3 2 2 3 1 0 0 2 0 0 1
Japan JPN 3 3 N.A. 0 0 1 2 2 1 0 0 1 0 0 1 0 0 1
Kazakhstan KAZ 0 0 N.A. 0 0 2 0 1 2 0 0 2 0 0 1 0 0 2
Kenya KEN 0 0 N.A. 0 0 2 1 1 2 0 0 2 0 0 2 0 0 1
Kyrgyz Repub KGZ 0 0 N.A. 0 0 2 0 0 2 0 0 2 0 0 2 0 0 1
Cambodia KHM 0 0 N.A. 0 0 1 3 1 2 0 0 1 0 0 1 0 0 2
Kiribati KIR 0 0 N.A. 0 0 1 1 2 1 0 0 1 0 0 2 0 0 2
St. Kitts an KNA 0 0 N.A. 0 0 1 3 2 1 0 0 1 0 0 2 1 3 2
Korea, Rep. KOR 0 0 N.A. 1 1 2 3 2 2 2 3 1 0 0 2 0 0 2
Kuwait KWT 0 0 N.A. 1 2 1 2 3 2 2 3 1 0 0 2 0 0 1
Lao PDR LAO 0 0 N.A. 0 0 2 2 2 2 0 0 2 0 0 1 0 0 1
Lebanon LBN 0 0 N.A. 0 0 1 2 3 2 1 2 2 0 0 2 0 0 2
Liberia LBR 0 0 N.A. 0 0 1 0 0 2 0 0 2 3 3 2 0 0 1
Libya LBY 0 0 N.A. 0 0 1 2 2 2 0 0 N.A. 0 0 N.A. 0 0 N.A.
St. Lucia LCA 0 0 N.A. 0 0 1 2 3 1 0 0 1 0 0 1 1 2 1
Liechtenstei LIE 0 0 N.A. 0 0 N.A. 0 2 N.A. 0 0 N.A. 0 0 N.A. 0 0 N.A.
Sri Lanka LKA 0 0 N.A. 0 0 1 3 2 2 0 0 1 0 0 1 0 0 2
Lesotho LSO 0 0 N.A. 0 0 1 1 2 2 0 0 2 0 0 2 0 0 1
Lithuania LTU 0 0 N.A. 0 0 2 3 1 1 0 0 1 0 0 1 0 0 2
Luxembourg LUX 0 0 N.A. 0 0 1 2 3 2 0 0 2 0 0 1 0 0 1
Latvia LVA 0 0 N.A. 0 0 1 0 0 1 0 0 1 0 0 1 0 0 2
Macao SAR, C MAC 0 0 N.A. 1 3 N.A. 0 0 N.A. 0 0 N.A. 0 0 N.A. 0 0 N.A.
Morocco MAR 0 0 N.A. 0 0 1 2 2 2 0 0 1 0 0 1 0 0 2
Monaco MCO 0 0 N.A. 0 0 1 0 2 1 0 0 1 0 0 1 0 0 1
Moldova MDA 0 0 N.A. 0 0 2 0 0 2 0 0 2 0 0 2 0 0 1
Madagascar MDG 0 0 N.A. 0 0 1 2 2 1 0 0 1 0 0 2 0 0 2
Maldives MDV 0 0 N.A. 0 0 1 2 2 1 0 0 2 0 0 2 0 0 2
Mexico MEX 0 0 N.A. 0 0 2 2 3 1 0 0 2 0 0 1 0 0 1
Marshall Isl MHL 0 0 N.A. 0 0 1 2 3 1 0 0 2 0 0 1 0 0 2
North Macedo MKD 0 0 N.A. 0 0 1 3 1 1 0 0 1 0 0 1 0 0 2
Mali MLI 0 0 N.A. 0 0 1 1 1 1 0 0 2 3 2 1 0 0 1
Malta MLT 0 0 N.A. 0 0 1 2 3 1 0 0 2 0 0 2 0 0 2
Myanmar MMR 0 0 N.A. 0 0 2 1 1 2 0 0 2 0 0 2 0 0 2
Montenegro MNE 0 0 N.A. 0 0 N.A. 3 2 N.A. 0 0 N.A. 0 0 N.A. 0 0 N.A.
Mongolia MNG 0 0 N.A. 1 3 1 2 3 1 0 0 2 0 0 2 0 0 1
Mozambique MOZ 0 0 N.A. 0 0 2 2 1 2 0 0 2 0 0 2 0 0 2
Mauritania MRT 0 0 N.A. 0 0 2 0 0 1 0 0 1 0 0 2 0 0 1
Mauritius MUS 0 0 N.A. 0 0 1 3 2 1 0 0 1 0 0 2 0 0 1
Malawi MWI 0 0 N.A. 0 0 2 1 1 2 0 0 2 0 0 2 0 0 2
Malaysia MYS 0 0 N.A. 3 2 1 3 2 1 3 2 1 0 0 2 0 0 1
Namibia NAM 0 0 N.A. 0 0 2 2 2 1 0 0 2 0 0 2 0 0 1
New Caledoni NCL 0 0 N.A. 0 0 N.A. 2 3 N.A. 0 0 N.A. 0 0 N.A. 0 0 N.A.
S.12
Niger NER 0 0 N.A. 0 0 1 0 0 2 0 0 1 0 0 1 0 0 1

Nigeria NGA 0 0 N.A. 0 0 2 3 1 1 0 0 2 2 2 1 0 0 1
Nicaragua NIC 0 0 N.A. 0 0 1 2 3 2 0 0 2 0 0 2 1 2 2
Netherlands NLD 3 3 N.A. 0 0 2 3 2 1 1 2 1 0 0 1 0 0 1
Norway NOR 3 3 N.A. 0 0 2 2 3 2 0 0 2 0 0 2 0 0 1
Nepal NPL 0 0 N.A. 0 0 1 2 1 2 0 0 2 0 0 2 0 0 2
Nauru NRU 0 0 N.A. 0 0 N.A. 1 3 1 0 0 2 0 0 2 0 0 2
New Zealand NZL 0 0 N.A. 1 2 1 2 3 2 0 0 1 0 0 2 0 0 2
Oman OMN 0 0 N.A. 0 0 1 2 3 1 2 3 1 0 0 2 0 0 1
Pakistan PAK 0 0 N.A. 0 0 1 0 0 1 0 0 1 0 0 2 0 0 1
Panama PAN 0 0 N.A. 0 0 1 2 2 2 0 0 2 0 0 2 1 2 2
Peru PER 0 0 N.A. 0 0 1 2 3 2 0 0 2 0 0 1 1 1 2
Philippines PHL 0 0 N.A. 3 2 2 2 2 2 1 1 2 0 0 1 0 0 2
Palau PLW 0 0 N.A. 0 0 1 1 3 1 0 0 2 0 0 2 0 0 2
Papua New Gu PNG 0 0 N.A. 0 0 1 1 1 1 0 0 2 0 0 2 0 0 1
Poland POL 0 0 N.A. 0 0 1 3 1 2 0 0 1 0 0 1 0 0 2
Puerto Rico PRI 0 0 N.A. 0 0 N.A. 0 1 N.A. 0 0 N.A. 0 0 N.A. 3 3 N.A.
Korea, Dem. PRK 0 0 N.A. 0 0 N.A. 1 1 N.A. 0 0 N.A. 0 0 N.A. 0 0 N.A.
Portugal PRT 2 2 N.A. 0 0 1 1 3 1 0 0 1 0 0 1 0 0 2
Paraguay PRY 0 0 N.A. 0 0 2 3 2 2 0 0 2 0 0 2 1 1 2
West Bank an PSE 0 0 N.A. 0 0 N.A. 2 3 N.A. 0 0 N.A. 0 0 N.A. 0 0 N.A.
French Polyn PYF 0 0 N.A. 0 0 N.A. 2 3 N.A. 0 0 N.A. 0 0 N.A. 0 0 N.A.
Qatar QAT 0 0 N.A. 0 0 2 3 1 1 2 3 1 0 0 2 0 0 1
Romania ROU 1 1 N.A. 1 1 2 2 2 1 0 0 1 0 0 1 0 0 2
Russian Fede RUS 0 0 N.A. 1 1 2 2 1 1 0 0 2 0 0 2 0 0 1
Rwanda RWA 0 0 N.A. 0 0 2 1 2 2 0 0 2 0 0 1 0 0 2
Saudi Arabia SAU 0 0 N.A. 0 0 1 2 3 2 2 3 2 0 0 2 0 0 1
Sudan SDN 0 0 N.A. 0 0 2 3 1 2 0 0 2 0 0 2 0 0 1
Senegal SEN 0 0 N.A. 0 0 2 0 0 1 0 0 2 1 2 1 0 0 1
Singapore SGP 0 0 N.A. 3 3 1 2 3 1 0 0 1 0 0 1 0 0 2
Solomon Isla SLB 0 0 N.A. 0 0 2 3 1 1 0 0 1 0 0 2 0 0 1
Sierra Leone SLE 0 0 N.A. 0 0 2 0 0 2 0 0 1 2 3 2 0 0 1
El Salvador SLV 0 0 N.A. 0 0 1 3 2 1 0 0 1 0 0 1 1 1 1
San Marino SMR 0 0 N.A. 0 0 1 0 0 1 0 0 1 0 0 1 0 0 1
Somalia SOM 0 0 N.A. 0 0 N.A. 1 1 N.A. 0 0 N.A. 0 0 N.A. 0 0 N.A.
Serbia SRB 2 2 N.A. 0 0 2 3 2 1 0 0 2 0 0 1 0 0 1
South Sudan SSD 0 0 N.A. 0 0 N.A. 0 0 N.A. 0 0 N.A. 0 0 N.A. 0 0 N.A.
Sao Tome and STP 0 0 N.A. 0 0 2 3 3 2 0 0 2 0 0 1 0 0 2
Suriname SUR 0 0 N.A. 0 0 2 2 2 2 0 0 2 0 0 1 3 3 2
Slovak Repub SVK 0 0 N.A. 0 0 1 3 2 1 0 0 2 0 0 1 0 0 1
Slovenia SVN 0 0 N.A. 0 0 2 3 2 1 0 0 1 0 0 1 0 0 1
Sweden SWE 1 1 N.A. 1 3 1 2 2 1 0 0 1 0 0 2 0 0 1
Eswatini SWZ 0 0 N.A. 0 0 2 1 1 2 0 0 1 0 0 2 0 0 2
Seychelles SYC 0 0 N.A. 0 0 1 1 3 2 0 0 2 0 0 1 0 0 2
Syrian Arab SYR 0 0 N.A. 0 0 2 3 2 N.A. 0 0 N.A. 0 0 N.A. 0 0 N.A.
Turks and Ca TCA 0 0 N.A. 0 0 N.A. 0 3 N.A. 0 0 N.A. 0 0 N.A. 1 3 N.A.
Chad TCD 0 0 N.A. 0 0 1 1 1 1 0 0 1 0 0 1 0 0 1
Togo TGO 0 0 N.A. 0 0 1 0 0 2 0 0 2 0 0 2 0 0 2
Thailand THA 0 0 N.A. 3 2 1 2 3 1 1 1 1 0 0 1 0 0 1
Tajikistan TJK 0 0 N.A. 0 0 2 0 1 2 0 0 2 0 0 2 0 0 2
Turkmenistan TKM 0 0 N.A. 0 0 2 0 0 1 0 0 2 0 0 2 0 0 2
S.13
Timor-Leste TLS 0 0 N.A. 0 0 1 0 1 1 0 0 1 0 0 1 0 0 1

Tonga TON 0 0 N.A. 0 0 1 3 2 1 0 0 2 0 0 2 0 0 2
Trinidad and TTO 0 0 N.A. 0 0 2 2 2 1 0 0 1 0 0 1 1 3 1
Tunisia TUN 0 0 N.A. 0 0 1 2 2 2 2 2 2 0 0 2 0 0 1
Turkey TUR 0 0 N.A. 0 0 2 3 1 1 3 1 1 0 0 2 0 0 2
Tuvalu TUV 0 0 N.A. 0 0 2 1 3 2 0 0 1 0 0 2 0 0 2
Tanzania TZA 0 0 N.A. 0 0 2 2 1 1 0 0 2 0 0 1 0 0 2
Uganda UGA 0 0 N.A. 0 0 2 1 1 2 0 0 2 0 0 1 0 0 1
Ukraine UKR 0 0 N.A. 0 0 2 0 0 2 0 0 2 0 0 1 0 0 2
Uruguay URY 0 0 N.A. 0 0 2 3 2 2 0 0 2 0 0 2 1 1 2
United State USA 3 3 N.A. 1 2 2 3 2 2 1 1 2 2 1 2 1 1 2
Uzbekistan UZB 0 0 N.A. 0 0 2 0 0 2 0 0 2 0 0 2 0 0 2
St. Vincent VCT 0 0 N.A. 0 0 1 1 2 1 0 0 1 0 0 1 1 3 1
Venezuela, R VEN 0 0 N.A. 0 0 2 3 2 2 0 0 1 0 0 2 1 2 2
British Virg VGB 0 0 N.A. 0 0 N.A. 1 2 N.A. 0 0 N.A. 0 0 N.A. 1 3 N.A.
Virgin Islan VIR 0 0 N.A. 0 0 N.A. 0 0 N.A. 0 0 N.A. 0 0 N.A. 1 3 N.A.
Vietnam VNM 0 0 N.A. 2 3 2 3 1 2 0 0 2 0 0 1 0 0 2
Vanuatu VUT 0 0 N.A. 0 0 1 1 1 1 0 0 1 0 0 1 0 0 1
Samoa WSM 0 0 N.A. 0 0 1 2 3 2 0 0 1 0 0 1 0 0 2
Yemen, Rep. YEM 0 0 N.A. 0 0 2 2 2 1 3 2 2 0 0 1 0 0 N.A.
South Africa ZAF 3 3 N.A. 3 1 2 2 3 2 0 0 2 0 0 2 0 0 2
Zambia ZMB 0 0 N.A. 0 0 2 1 1 2 0 0 2 0 0 1 0 0 2
Zimbabwe ZWE 0 0 N.A. 0 0 N.A. 1 1 N.A. 0 0 1 0 0 2 0 0 2
Panel B: Correlation between Disease Severity and Health Expenditure Adjustment
Mortality Rate Case/Pop Mortality Rate Case/Pop Mortality Rate Case/Pop Mortality Rate Case/Pop Mortality Rate Case/Pop Mortality Rate Case/Pop
Health Spending Adjustment N.A. N.A. -0.0003 -0.1219 -0.0893 -0.0502 -0.119 -0.0282 0.1036 0.6779 -0.0128 -0.1313
Significance N.A. N.A. 0.9986 0.5529 0.2706 0.5297 0.5626 0.8911 0.7757 0.0312 0.9425 0.459
Obs N.A. N.A. 26 26 154 159 26 26 10 10 34 34
N OTE: Panel A depicts the severity dummy and health expenditures adjustment dummy, by country and within each disease episode. For the former, we use either mortality rate or case-to-
population rate. 0 means unaffected. For the 1968 Flu, 1, 2 and 3 means isolated, regional and widespread. For the health expenditures adjustment dummy, we divide countries into three groups
based on the change in health expenditure in the crisis onset year, normalized by the previous year’s GDP. Panel B reports the cross-country correlation between health spending adjustment and
the severity measure (mortality rate or cases rate) for each episode in affected countries.
Table S.8 The Effect of Health Crises on GDP Growth:
Trade Linkages (Severity of Crises)
GDP growth rate %

(1) (2) (3) (4) (5) (6)
Sample Period: 1988-2018
Shock -2.22** -1.98**
(1.03) (0.97)
Mortality Rate -2.07** -2.40*
(0.86) (1.22)
Cases/Pop -2.50*** -1.54***
(0.62) (0.55)
Shock to Trade Partner -0.52** -1.11 -1.04
(0.23) (0.71) (0.65)
Trade Weighted by Indirect Shock -1.00**
(0.38)
Trade Weighted by Mortality Rates -0.10
(0.07)
Trade Weighted by Cases/Pop -0.14***
(0.02)
Trade/GDP 0.19 0.17 0.24 0.32 0.23 0.21
(0.33) (0.33) (0.35) (0.38) (0.35) (0.34)
Domestic Credit/GDP -0.73 -0.73 -0.76 -0.76 -0.76 -0.73
(0.46) (0.46) (0.49) (0.49) (0.48) (0.46)
Log(Population) 0.12** 0.11** 0.11** 0.12** 0.11** 0.12**
(0.05) (0.05) (0.05) (0.05) (0.05) (0.05)
Log(GDP per capita) -0.20** -0.21** -0.23** -0.22** -0.22** -0.19*
(0.09) (0.09) (0.10) (0.10) (0.09) (0.10)
Recession -0.56 -0.57 -0.85* -0.83* -0.79* -0.47
(0.38) (0.38) (0.42) (0.44) (0.39) (0.32)
Banking Crisis -1.54*** -1.54*** -1.45*** -1.44*** -1.46*** -1.52***
(0.37) (0.36) (0.41) (0.43) (0.40) (0.40)
Constant 4.76*** 4.99*** 5.08*** 4.64*** 5.02*** 4.51***
(0.46) (0.51) (0.59) (0.50) (0.56) (0.45)
Observations 4502 4502 4502 4502 4502 4502
Within R2 0.065 0.066 0.051 0.045 0.055 0.061
N OTE: The dependent variable is the real annual GDP growth rate. Shock dummy equals one for country i at
onset year t, and zero otherwise. Shock to trade partner equals to 1 if one of the country’s trading partner is hit
by a health crisis, and 0 otherwise. The weight trade network in column (2) is constructed by multiplying the
shock to a country’s trading partner dummy by the share of bilateral trade between these two countries in the
country’s total trade (Trade weighted by indirect shock). The weight trade network in column column (4) and
(6) is constructed by multiplying the trading partner’s ex post mortality rate or cases number per population
by the trade share (trade weighted by morality rate and cases to population). Standard errors are corrected
using Driscoll and Kraay (1998) and reported in parentheses. ∗ , ∗∗ and ∗∗∗ indicate statistical significance at
the 10%, 5%, and 1% level, respectively.
S.14
S.3 Consumption and Investment
We first estimate how the consumption and investment components of GDP were affected
by past health crises. There are many reasons why a health crisis might lower consumption
and investment.S32 For example, with an increase in uncertainty in the economy (see Baker
et al. (2020)), people might increase precautionary savings and thus reduce consumption
and investment plans. These effects will be even stronger if people expect a negative impact
of health crises on future income. The decline in spending could further strengthen the
negative impact of crises on the production side and slow down the recovery phase.
Figure S.5 reports the impulse response functions for the growth rates of private con-
sumption expenditure and fixed investment. Private consumption growth in affected coun-
tries is 2.8% less than for unaffected countries in the onset year, with a 0.1% bounce-back
one year later. Perhaps not surprisingly, the drop in fixed investment growth is much larger:
8.3% relative decline in affected countries in the onset year, with a negative 1.0% one year
later and a bounce-back only two years later. The sharp and persistent drop in investment
and a larger bounce-back two years later is consistent with the observed greater volatility in
investment, in this case likely due to the heightened uncertainty accompanying the health
shock and recession (Baker et al. (2016)).
The dynamics of consumption and investment behavior during the health crises help us
understand the output dynamics. When the outbreak occurs, the negative shock elicits cuts
in both consumption and investment expenditures. The effect on consumption is relatively
short-lived — when output starts to recover in the first year, consumption resumes. For
investment, it takes one more year to recover from the negative shock. Furthermore, the
bounce-back in investment is not sufficient to offset the negative impact the health crisis
causes. As a result, the health crisis can have a persistent effect on output.
S32 Malmendier and Shen (2020) show that personal experiences from negative economic shocks “scar”
consumer behavior in the long run. The authors do not directly address health crises per se, but instead
show that households who have lived through times of high unemployment spend significantly less on food
and total consumption, after controlling for income, wealth, employment, demographics, and the current
unemployment rate. Their model of experience-based learning is suggestive of a channel through which
a shock like COVID could have persistent effects. Carroll et al. (2020) also study the negative impact of
COVID on consumption spending.
S.15
Figure S.5 The Effect of Health Crises on Consumption and Investment
Panel A: Private Consumption Growth Panel B: Fixed Investment Growth

5
5
2
2
-1
-1
Percent
Percent
-4
-4
-7
-7
-10
-10
0 1 2 3 4 5 0 1 2 3 4 5
Years Years
∑4s=1 βH 4 H
s git−s + ∑s=0 δs Dit−s + Xit + εit , with H = 0, 1, · · · , 5, where git is the annual real growth rate of private consumption in Panel A
and fixed investment in Panel B for country i at year t, Dit is a dummy variable indicating a disease event hitting country i in year t, with
Xit including country-level controls such as Trade/GDP, Domestic Credit/GDP, population and log GDP per capita. We also include a
decade dummy, US recession dummy, a banking crisis dummy and country fixed effects. Standard errors are corrected using Driscoll
and Kraay (1998). One standard error bands are shown.
S.4 Recovery in GDP growth: A Higher-frequency Look

Our analysis using annual data and a large sample of countries suggests that bounce-back
occurs in the year after the health shock. It is interesting to investigate by how much and
how quickly bounce-back occurs using higher frequency data. We have available quarterly
GDP data from OECD, though only for 47 countries. See Table S.3 for details. Figure S.6
displays the quarterly GDP growth distribution of affected and unaffected countries side by
side. We plot these distributions over three different intervals of three consecutive quarters:
(1) from five quarters before to two quarters before onset, (2) centered in the onset quarter,
and (3) from three quarters to six quarters after the onset quarter. We choose a three quarter
window because the official declaration of a health crisis by WHO tends to be conservative
(slow). This consideration does not affect identification in our annual sample nearly as
much as it could affect the quarterly identification.S33
The average, annualized growth rate in the three quarter window centered on the health
crisis onset is -0.4% for affected countries and 2.8% for unaffected countries. This is in line
with our estimates using annual data above. In quarters 2 to 5 before the health crisis, the
S33 In
addition, note that all countries in the quarterly sample were affected by H1N1, also unlike the annual
sample. This weakens identification.
S.16
average growth rate in affected countries is not much different than in unaffected countries,
nor is it in quarters 3 to 6 after the health shock. This suggests that the bounce-back of GDP
growth is quick. Examining the magnitudes of these comparative responses, however, we
see that bounce-back is not sufficient to restore the level of GDP within this time interval,
consistent with the results from the annual sample.
We also estimate panel regressions using quarterly GDP growth data. Table S.9 con-
firms that our main results hold in the quarterly data. Health crises shocks lower GDP
growth in affected countries compared to unaffected countries, with an impact magnitude
that is slightly larger than in the annual data. Furthermore, each individual health crisis
contributes to this negative effect, with the exception of Ebola (see Table S.10). We also
use the high, medium or low severity dummy to replace the shock dummy in Table S.11
or directly weight the health shock by the severity of each health crisis in Table S.12. We
find that a more severe health crisis is associated with larger declines in GDP growth. Our
last exercise is a placebo test of randomly picking a country-quarter to replace our quar-
terly shock dummy, as seen in Table S.13. The insignificant coefficient on the artificially
constructed variable suggests that our identification is valid.
S.17
Figure S.6 Quarterly GDP Growth Distribution
.15
.15
.15
.1
.1
.1
Density
Density
Density
.05
.05
.05
0
0
-5
10
-5
10
-5
10
(-5) to (-2) Quarters(Affected Countries) Onset (-1) to (+1) Quarters(Affected Countries) (+3) to (+6) Quarters(Affected Countries)
S.18
Mean = 2.63 Mean = -.44 Mean = 3.36
.2
.2
.15
.15
.15
.1
Density
Density
Density
.1
.1
.05
.05
.05
0
0
-5
10
-5
10
-5
10
(-5) to (-2) Quarters(Unaffected Countries) Onset (-1) to (+1) Quarters(Unaffected Countries) (+3) to (+6) Quarters(Unaffected Countries)
Mean = 2.91 Mean = 2.83 Mean = 3.32
N OTE: The real quarterly year-over-year seasonally adjusted GDP growth rate distribution for the affected and unaffected country groups. 0 represents the quarter when WHO declares a health
crisis hits a country.
Table S.9 The Effect of Health Crises on Real Quarterly GDP Growth
Quarterly GDP growth rate (YoY)%

(1) (2) (3) (4)
Sample Period: 1960-2018 1990-2018
Shock (Q) -3.73*** -3.80*** -2.32*** -0.98***
(1.23) (1.16) (0.52) (0.23)
Consensus Forecast (Q) 1.37*** 1.35***
(0.22) (0.21)
Trade/GDP 0.03 -0.03 0.57 0.48
(0.79) (0.80) (1.21) (1.16)
Domestic Credit/GDP -1.81*** -1.94*** -1.20 -1.20
(0.56) (0.68) (1.35) (1.33)
Log(Population) -0.25*** -0.31* -0.00 -0.01
(0.09) (0.17) (0.08) (0.08)
Log(GDP per capita) 0.59*** 0.71* 0.08 0.10
(0.18) (0.37) (0.23) (0.22)
Recession -1.48** -1.85* -1.36** -1.29**
(0.70) (1.06) (0.61) (0.63)
Banking Crisis (Q) 0.29 0.52 -0.16 -0.26
(1.14) (1.25) (0.90) (0.90)
Constant 3.38*** 3.48*** -1.59 -1.48
(0.81) (1.05) (1.67) (1.63)
Observations 5218 3959 1240 1222
Adjusted R2 0.126 0.108 0.378 0.346
N OTE: The dependent variable is real quarterly GDP growth rate, annualized. The sample period for column (1) is 1960-2018 while the
sample period for column (2)-(4) is 1990-2018. The shock dummy equals one for country i hit by a health crisis at onset year t, and zero
otherwise. In columns (1)-(3), we include all six health crises while column (4) excludes H1N1 and the 1968 Flu. Country and decade
fixed effects are included. All standard errors are corrected using Driscoll and Kraay (1998) and reported in parentheses. ∗ , ∗∗ and ∗∗∗
indicate statistical significance at the 10%, 5%, and 1% level, respectively.
S.19
Table S.10 The Effect of Health Crisis on Real Quarterly GDP Growth, by Crisis

(1) (2) (3) (4)
Sample Period: 1960-2018 1990-2018
EBOLA 0.40 0.30 -0.21 -0.21
(0.35) (0.35) (0.26) (0.27)
H1N1 -6.39*** -6.18*** -3.59***
(1.01) (1.24) (0.86)
MERS -0.86*** -0.79*** -0.87*** -0.85***
(0.27) (0.27) (0.24) (0.23)
SARS -1.34*** -1.55*** -1.45*** -1.46***
(0.39) (0.36) (0.28) (0.27)
Zika -2.62*** -2.62*** -0.93*** -0.94***
(0.41) (0.40) (0.27) (0.27)
Hkflu -0.77*
(0.44)
(0.22) (0.22)
Trade/GDP 0.01 -0.06 0.53 0.48
(0.78) (0.79) (1.20) (1.16)
(0.56) (0.68) (1.34) (1.33)
Log(Population) -0.25*** -0.32* -0.01 -0.01
(0.09) (0.17) (0.08) (0.08)
(0.18) (0.37) (0.23) (0.22)
Recession -1.36** -1.69 -1.29** -1.31**
(0.68) (1.06) (0.61) (0.63)
Banking Crisis (Q) 0.21 0.42 -0.23 -0.26
(1.13) (1.25) (0.90) (0.90)
Constant 3.36*** 3.42*** -1.47 -1.46
(0.83) (1.08) (1.67) (1.63)
Observations 5218 3959 1240 1222
Adjusted R2 0.136 0.120 0.384 0.347
N OTE: The dependent variable is real quarterly GDP growth rate, annualized. The sample period for column (1) is 1960-2018 while
the sample period for columns (2)-(4) is 1990-2018. Country and decade fixed effects are included. All standard errors are corrected
using Driscoll and Kraay (1998) and reported in parentheses. ∗ , ∗∗ and ∗∗∗ indicate statistical significance at the 10%, 5%, and 1% level,
respectively.
S.20
Table S.11 The Effect of Health Crises on Real Quarterly GDP Growth, by Severity

(1) (2) (3) (4) (5) (6)
Sample Period: 1960-2018 1990-2018 1960-2018 1990-2018
High Mortality Rate -4.77*** -5.09*** -2.72***
(1.36) (1.25) (0.75)
Medium Mortality Rate -5.17*** -4.93*** -3.66***
(1.27) (1.31) (1.06)
Low Mortality Rate -2.45*** -2.60*** -1.24***
(0.88) (0.83) (0.27)
High Cases/Pop -3.65*** -3.82*** -2.56***
(1.20) (1.23) (0.90)
Medium Cases/Pop -4.43*** -4.40*** -2.57***
(1.28) (1.19) (0.47)
Low Cases/Pop -3.02** -3.09*** -1.72***
(1.23) (1.11) (0.40)
(0.22) (0.22)
Trade/GDP 0.05 -0.02 0.56 0.03 -0.03 0.57
(0.80) (0.81) (1.21) (0.79) (0.80) (1.22)
Domestic Credit/GDP -1.80*** -1.93*** -1.23 -1.81*** -1.93*** -1.19
(0.57) (0.68) (1.35) (0.56) (0.68) (1.35)
Log(Population) -0.25*** -0.31* -0.00 -0.25*** -0.31* -0.00
(0.09) (0.17) (0.08) (0.09) (0.17) (0.08)
Log(GDP per capita) 0.59*** 0.71* 0.09 0.60*** 0.72* 0.08
(0.18) (0.37) (0.23) (0.18) (0.37) (0.23)
Recession -1.45** -1.81* -1.33** -1.47** -1.85* -1.36**
(0.69) (1.06) (0.60) (0.69) (1.06) (0.61)
Banking Crisis (Q) 0.28 0.50 -0.18 0.29 0.52 -0.16
(1.13) (1.25) (0.89) (1.14) (1.25) (0.90)
Constant 3.36*** 3.46*** -1.57 3.37*** 3.48*** -1.59
(0.81) (1.06) (1.67) (0.81) (1.05) (1.68)
Observations 5218 3959 1240 5218 3959 1240
Adjusted R2 0.128 0.111 0.382 0.126 0.109 0.378
N OTE: The dependent variable in column (1)-(6) is real quarterly GDP growth rate, annualized. The sample
period for columns (1) and (4) is 1960-2018 while the sample period for columns (2)-(3) and (5)-(6) is
1990-2018. Country and decade fixed effects are included. All standard errors are clustered corrected using
S.21
Table S.12 The Effect of Health Crises on Real Quarterly GDP Growth:
Weighted by Severity of Crises

(1) (2) (3) (4) (5) (6)
Sample Period: 1960-2018 1990-2018 1960-2018 1990-2018
Mortality Rate -4.67* -4.65* -4.33**
(2.68) (2.46) (1.66)
Cases/Pop -8.36*** -8.18*** -2.29**
(1.67) (2.01) (1.07)
(0.24) (0.24)
Trade/GDP 0.09 0.06 0.70 0.07 0.03 0.69
(0.83) (0.85) (1.30) (0.82) (0.84) (1.31)
Domestic Credit/GDP -1.84*** -1.98*** -1.13 -1.81*** -1.95*** -1.15
(0.59) (0.71) (1.36) (0.58) (0.70) (1.36)
Log(Population) -0.26*** -0.32* -0.01 -0.26*** -0.32* -0.01
(0.09) (0.18) (0.08) (0.09) (0.17) (0.08)
Log(GDP per capita) 0.60*** 0.71* 0.08 0.60*** 0.72* 0.09
(0.18) (0.37) (0.23) (0.18) (0.37) (0.23)
Recession -1.55** -1.98 -1.43** -1.50* -1.90 -1.40**
(0.78) (1.20) (0.67) (0.77) (1.18) (0.67)
Banking Crisis (Q) 0.42 0.67 -0.04 0.38 0.62 -0.06
(1.18) (1.32) (0.96) (1.18) (1.31) (0.96)
Constant 3.32*** 3.46*** -1.86 3.31*** 3.43*** -1.82
(0.83) (1.09) (1.80) (0.84) (1.10) (1.79)
Observations 5214 3959 1240 5214 3959 1240
Adjusted R2 0.11 0.08 0.36 0.11 0.09 0.36
period for columns (1) and (4) is 1960-2018 while the sample period for columns (2)-(3) and (5)-(6) is
1990-2018. Country and decade fixed effects are included. All standard errors are clustered corrected using
S.22
Table S.13 The Effect of Health Crises on Real Quarterly GDP Growth: Placebo Test

(1) (2) (3) (4)
Sample Period: 1960-2018 1990-2018
Shock (Q) -0.27 -0.64 0.02 -0.07
(0.46) (0.53) (0.35) (0.32)
(0.24) (0.21)
Trade/GDP 0.10 0.06 0.69 0.49
(0.83) (0.86) (1.30) (1.16)
(0.60) (0.71) (1.37) (1.33)
Log(Population) -0.26*** -0.32* -0.01 -0.01
(0.09) (0.18) (0.08) (0.08)
(0.18) (0.37) (0.24) (0.23)
Recession -1.57* -2.00 -1.44** -1.28**
(0.80) (1.22) (0.68) (0.64)
Banking Crisis (Q) 0.45 0.71 -0.03 -0.26
(1.19) (1.33) (0.97) (0.90)
Constant 3.33*** 3.47*** -1.87 -1.50
(0.84) (1.10) (1.81) (1.64)
Observations 5218 3959 1240 1222
Adjusted R2 0.105 0.082 0.358 0.344
period for column (1) is 1960-2018 while the sample period for columns (2)-(4) is 1990-2018. The shock
variable is randomly generated. Country and decade fixed effects are included. All standard errors are
clustered corrected using Driscoll and Kraay (1998) and reported in parentheses. ∗ , ∗∗ and ∗∗∗ indicate
statistical significance at the 10%, 5%, and 1% level, respectively.
S.23

Modern Pandemics: Recession and Recovery

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Board of Governors of the Federal Reserve System

International Finance Discussion Papers

Modern Pandemics: Recession and Recovery

Chang Ma, John Rogers, and Sili Zhou

Please cite this paper as:

First Draft: March 2020

Contribution to the Literature

Epidemic and Pandemic Events

data for growth rates.

GDP growth Around Health Crises

yit = αi + βDit + Xit + εit (2)

the technique, for example.

Exogeneity It is important to address concerns about endogeneity in our approach. The

GDP Growth Unemployment

4.1 Impulse Response Functions

Health Crises and Systemic Banking Crises

growth of +2.9% in 2019 (World Economic Outlook, June 2020).

Panel A: Basic Education Panel B: Intermediate Education Panel C: Advanced Education

Panel D: Male Panel E: Female Panel F: Female with Basic Education

Panel D: Agricultural Sector Panel E: Industry Sector Panel F: Service Sector

4.2 Panel Regressions

GDP growth rate %

GDP growth rate %

GDP growth rate %

Table 4 Placebo Test

GDP growth rate %

Finally, as a robustness check on the identification of disease episode event-years, we do

Feedback among Growth, Health Crises, and Health Expenditures

4.3 Geographic, Sector, and Episode Breakdowns

Upper-middle-income, Lower-middle-income and Lower-income economies. We estimate the impulse re-

System 1 Shock Shock (t − 1) GDP Growth (t − 1) Health Exp (t − 1) Obs R2

Panel A: H1N1 Panel B: High vs. Low Income Country

Panel C: Advanced Economies Panel D: Emerging Market Economies

5 International Trade and Cross-Country Propagation

GDP growth rate %

affected countries and unaffected countries.

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