We provide theory and evidence on the relationship between globalization and pandemics. Business travel facilitates trade and travel leads to human interactions that transmit disease. Trade-motivated travel generates an epidemiological externality across countries. If infections lead to deaths, or reduce individual labor supply, we establish a general equilibrium social distancing effect, whereby increases in relative prices in unhealthy countries reduce travel to those countries. If agents internalize the threat of infection, we show that their behavioral responses lead to a reduction in travel that is larger for higher-trade-cost locations, which initially reduces the ratio of trade to output.

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1 April 2023

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American Economic Review 113(4) , pp.939-981, 2023

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DOI: 10.1257/aer.20201479

https://www.aeaweb.org/articles?id=10.1257/aer.20201479

This Journal article is published under the centre's Trade programme, Urban programme.