A problem of epidemic proportions? The unanticipated consequences of infectious disease outbreak on international trade

This paper studies the effect of the role of social anxiety stemming from the outbreak of infectious disease—such as SARS—on international commercial activity, and suggests policies to minimize potential economic dislocation. The paper highlights the role that perceptions about an outbreak play in disrupting economic activity. This is important since the direct impact of the outbreak of infectious disease is likely to be lower than its actual effect. If the implemented policies are too lax, the implications for international public health can be devastating. On the other hand, the international reaction to public reports about outbreaks typically evokes policy reactions that exceed health risks. Consequently, our current body of knowledge informing policy is not only missing the indirect impacts but lends itself to an exaggerated policy reaction. The article addresses this issue by bringing to light the types of policies and institutions with the greatest chance of success under these circumstances.

We proceed by first developing a benchmark economic model of international trade, with the underlying societal structure of the country that experiences the disease outbreak incorporated into it. We then extend the analysis by formally introducing decision-maker anxiety into the model. This allows us to evaluate the extent of the displacement of international commercial activity and leads up to policy recommendations targeted to minimize the disruption while safeguarding public health. In the process, the paper aims to take a step to bridge the gap between economists and public health experts on this important issue.