Infectious Diseases and Economic Growth

This paper develops a framework to study the economic impact of infectious diseases by integrating epidemiological dynamics into a continuous time neo-classical growth model. There is a two way interaction between the economy and the disease: the incidence of the disease affects labor supply and investment in health capital can affect the incidence and recuperation from the disease. Thus, both the disease incidence and the income levels are endogenous. It is a general framework to study the effect and control of infectious diseases where there is an interaction with physical capital and health expenditures. The dynamics of the disease make the control problem non-convex and thus, a new existence theorem is given. We fully characterize the local dynamics of the model. There can be multiple steady states, and as the underlying parameters change there can be bifurcations. There can also be steady states where the disease is endemic but the optimal response is not to spend any resources on controlling it. We also see how the endogenous variables change as some underlying economic parameters are varied.