Pandemic effects in the Solow growth model

Abstract

We show how diseases can affect economic growth in a Solow growth model, with population growth and no technical progress, but modified to include a saving rate that depends on the individual health status. We successively insert this model into the SIS (susceptible–infected–susceptible) and SIR (susceptible–infected–recovered) models of disease spreading. In these two models, the spread of the infection proceeds according to the so-called basic reproductive number. This number determines in which of the two possible equilibria, the disease-free or the pandemic equilibrium, the economy ends. We show that output per capita is always lower in the pandemic steady state, which implies a contraction in the economy's production possibilities frontier.