# Session Overview ## Aims To introduce students to the history, empirical evidence and policy discussions surrounding the global economic impact of infectious disease. ## Learning outcomes By the end of this session you should be able to: - present an historical overview of the economics of global infectious disease in the 20th and 21st centuries - discuss the importance of infectious disease outbreaks to trade policy and individual behaviour - discuss the importance and effects of the International Health Regulations in the event of an infectious disease outbreak - present historical data on the economic impact of pandemics - contrast historical estimates with future predictions - discuss the requirements of economic models to estimate infectious disease impacts - describe a macroeconomic model used to estimate economic impacts of infectious disease outbreaks - present and discuss behaviours and policies of relevance to global infectious disease outbreaks, especially the role of the World Health Organization # 1. Introduction Health sector affect all sectors of a national economy and have implications for international trade. Policymakers may need to strike an important balance between the economic, health and political implications of policies to mitigate a global infectious disease outbreaks. There are different types of infectious disease and they vary with regard to the mode (or vector) of transmission and the speed of transmission. They also vary in terms of severity and duration. Other variations between infectious diseases include the age groups they affect, the severity of the illness and the potential for re-infection. As we proceed through a historical overview of the economics of global infectious disease in the 20th and 21st centuries in this session ==we will see how, over time, the economic effects of infectious disease can change== and we will also see that globalisation has a large part to play in this. When considering such large-scale issues, it is important to realise that microeconomic or partial equilibrium modelling (where analysis focuses only on a single market, such as the health sector) is not sufficient to capture the economic effects of a global infectious disease outbreak (Beutels et. al., 2008) and therefore models have proved to be a valuable tool in this context. In this session we shall see that ==economic, health and political policies for infectious disease outbreaks may not always complement one another==. We will discuss the ways in which infectious disease outbreaks can influence trade, particularly tourism, and how they can also change the behaviour of individuals. We will discuss how the International Health Regulations (IHR) are important and have been used in past outbreaks and can contribute to the effective handling of global infectious disease pandemics. Policies are key to the effective handling of a pandemic and we will discuss the two main methods to estimate policy costs and implications: retrospective analysis and prospective modelling. Towards the end of the session, we will present an example of the latter of these two methods for estimating the impact of both the health and wider macroeconomic effects of Covid-19. # 2. Globalisation, infectious disease and Spanish flu - Globalised communication networks enable rapid sharing of knowledge with regard to the existence and spread of a disease but can also be used for providing advice with regard to treatment and prevention. - Trade x health: the goods may spread infection, the people involved in the transportation may spread disease - Transportation or movement of people can spread disease - Trade barriers in response to infectious disease can also have economic effects: due to foot and mouth disease, consumption of British beef in other countries were reduced. An impact on one sector can influence other sectors. - Healthcare expenditure and healthcare demand are also affected by infectious disease --> affect routine care and treatment of patients and health sector costs. - Infectious disease and global comms of risk can also affect individual behaviour in various ways. - Consumption/shopping behavior may be altered to avoid purchase of an infected product. Conversely, there's panic buying. Trade can influence the spread of infectious disease in more than one way. The goods that are traded may spread infection (for example, in the 1980s “mad cow disease” – Bovine Spongiform Encephalopathy (BSE) – was spread through food goods, and rabies can be transmitted through livestock). However, people involved in the transportation of goods may also carry and spread disease. [[Question]] How infectious disease, globalisation, and the whole economy interact? An economy dependent on labour supply as a factor of production: labour, capital and land are used, together with intermediate goods (raw materials) to produce goods or services. Health (morbidity and mortality) has a direct effect on the labour force and, therefore, if a health issue or pandemic causes a reduction in worker numbers, a reduction in hours worked or even a fall in the efficiency of workers due to ill health, the production of goods may be affected. Clearly health affects the whole economy since workers become unwell in all sectors and, therefore, the economic implications are economy-wide. This is why, ==when an illness or disease affects a substantial proportion of the population, it is important to capture the general equilibrium effect of that disease (across all sectors/markets) rather than just the partial equilibrium impacts on one (health) sector==. # 3. Outbreaks and the [[International Health Regulation (IHR)]] ## 3.1 SARS: Pandemics in the 20th century During Spanish flu in 1918, 2.5% died. Primarily killed the strong, healthy working age adults, particularly aged 25-35. Globalisation was not a factor back then. It is logical that the economic impact is small, and there is no evidence to suggest major behavioural change in the use of public transport. Other pandemics, 1957 and 1968/9. The SARS pandemic in 2003 and, more recently, Covid-19, have put infectious disease firmly back on the economic agenda and much of their impact has been influenced by globalisation. SARS is the first clear example of where global health policy and economics invoked a coordinated WHO global response to an infectious disease outbreak. Upon discovery of SARS, the [[World Health Organization (WHO)]] mobilised its [[Globalised Outbreak Alert and Response Network (GOARN)]] to assist and imposed travel warnings for those intending to travel in severely affected areas (in particular Beijing and Toronto). This network enabled rapid case identification, reporting and the fast flow of information necessary to mitigate the pandemic and to share medical knowledge. The response of the WHO to an outbreak is covered later in this session, for now, it is enough to understand that, when an infectious disease outbreak occurs, the WHO is able to issue advisories regarding travel of people and transport of goods, and regulations exist to govern when and how these advisories are issued. ## 3.2 Retrospective costs of infectious disease outbreaks Although Covid-19 is the most obvious example of a recent pandemic with significant economic repercussions, we initially examine the economic impact of the SARS outbreak in 2003. SARS is interesting as it provoked some fairly substantial economic impacts but, in contrast to Covid-19, it infected a relatively small number of people. Also, in contrast to Covid, the advice and policies that were imposed during SARS were primarily driven by WHO directives and private behaviour rather than domestic government restrictions. Traditional health economics methods tend to focus on the microeconomic aspects of illness, the cost to the health sector. By looking at healthcare and social assistance for Canada during the SARS outbreak (Figure 1), we can see a large increase in expenditure, which suggests that SARS did impose additional costs to the health service in Canada. ![[CleanShot 2024-03-07 at [email protected]]] [[Economic motivation behind IHR]] | Worldwide communication enabled travel to infected regions to be reduced, which may have prevented wider transmission. However, the early publicity meant that some countries were seen as much more “risky” than others by tourists and were avoided. The potential economic loss to early infected countries that may result from the reaction of tourists, or people generally, to a disease outbreak could be a disincentive from notifying the WHO of a domestic outbreak. This is a very important consideration and is a key motivation behind the production of the IHR, which we will cover shortly. ## 3.3 Ebola During Ebola, WHO also deployed GOARN. But this time, there is no travel ban ton international travel or trade. The only imposing travel warnings are for those intending to travel in severely affected areas of West Africa. This is an example of a global health policy which minimised the impact on trade and the economy during an infectious disease outbreak. The fact that Ebola-infected individuals are infectious only after they develop symptoms was crucial to the prevention response and may have lessened the overall burden of the disease. However, in addition to the direct costs of the disease, behavioural change known as “[[aversion behaviour]]” took place. Actions were taken by individuals to limit the risk of exposure, and by businesses, who anticipated those individual actions. As a result, factory cement sales and diesel sales fell in Sierra Leone in response to the outbreak, non-essential travel to the locality of epidemics was avoided and some tourists re-routed to other destinations. These reactions can be rational, but sometimes the risk is overestimated and could result in a number of adverse effects including labour and supply scarcity, trade slow-down and eventually a decline in economic growth in the affected countries. ## 3.4 [[International Health Regulation (IHR)]] It has been mentioned how WHO advisories influenced tourism during SARS and this action was informed by the IHR, which we will cover briefly here. However, the idea that regulations were necessary to maintain trade in the face of disease is no new idea. The international sanitary conferences were convened in 1851. when Europe was forming profitable relations with its colonies for trade but cholera epidemics spread via this trade. The conferences were set up to determine the means by which disease prevention could be maximised but impacts on trade and economic gain reduced. While these conferences are not viewed as having been effective, a set of modern regulations, the IHR, were revised at a time which coincided with SARS and, where those recommendations were implemented, they were shown to be of importance. WHO's IHR: > “The [[International Health Regulation (IHR)]](2005), or IHR (2005), represents a binding international legal agreement involving 196 countries across the globe, including all the Member States of WHO. Their aim is to help the international community prevent and respond to acute public health risks that have the potential to cross borders and threaten people worldwide. ==The purpose and scope of the IHR (2005) is to prevent, protect against, control and provide a public health response to the international spread of disease in ways that are commensurate with and restricted to public health risks, and which avoid unnecessary interference with international traffic and trade.==” (WHO Website on IHR: https://www.who.int/news-room/q-a-detail/emergencies-international-health-regulations-and-emergency-committees). While surveillance is the responsibility of the individual country, IHR dictate that, once a potential PHEIC has been identified within a country, the WHO must be notified by the swiftest possible means. Since any emergency or outbreak could have potential economic effects on a country, most notably through trade or tourism, as with SARS, it is tempting for a government to conceal an outbreak in the hope that, by handling it domestically and preventing further spread, no changes in trade will occur. However, notification of the WHO invokes support for an infected country which may include providing technical advice or even sending teams of experts into a country to assist in the public health response. This increases the chance of isolating any emergencies and, at the same time, facilitates preparedness by other countries and minimises spread. This counters the temptation for a country to delay notification of a disease. Although the IHR were not fully in place in all countries during SARS, many of the responses and actions outlined were carried out and some have suggested that the implementation of these policies served to mitigate the outbreak and prevent SARS from becoming a much more serious problem. [[Question]] What are the key points of [[International Health Regulation (IHR)]]? Risk management Building core capacities within health systems Global cooperation and national sovereignty for PHEIC **Risk management and IHR**: The revised IHR (2005) adopted a blended approach toward risk management. This includes: reporting to WHO certain diseases of known risk such as SARS; assessment of risk for other diseases of known risk, reporting those that are potentially PHEIC (including Ebola); and reporting to the WHO any event of unknown risk which has the potential to become a PHEIC. ==However, it should be noted that experience with Ebola, Covid-19 and other outbreaks has also highlighted the need for IHRs to be flexible in approach, in the face of unknowable (and highly variable) risk==. **Building core capacities within health systems**: The IHR requires countries to build certain core capacities within their health systems. The challenge has been how to assess the achievement of IHR core capacities by countries. The Ebola outbreak of 2014 in West Africa revealed that both the domestic and global communities were ill-prepared to deal with the pandemic: no vaccines, no treatments, few diagnostics, and insufficient medical teams and trained responders (WHO, 2016). Core capacities had not been adequately developed despite the 20 previous outbreaks of Ebola since the first one in 1976, although the 2014 West African outbreak was one of the most widespread to date. The Ebola Interim Assessment Panel noted that the existing self-assessment of IHR core capacities was “unacceptable” and recommended a system of costed and independently assessed plans to guide countries toward developing the IHR core capacities. **Global cooperation and national sovereignty for PHEIC**: The revised IHR of 2005 presented a more coherent agreement on approaches for strengthening systems of global health where the WHO, in its leadership role, champions responses to global public health emergencies. However, in practice, the WHO faces challenges with regard to funding, particularly for emergencies, and lacks the enforcement mechanisms to ensure member states comply with the IHR provisions. For instance, the IHR requires that any additional health measures introduced by individual countries during a global public health emergency should be based on scientific evidence and guidance from the WHO. But more than 40 countries implemented additional measures and travel restrictions in the wake of the 2014 Ebola outbreak in West Africa, outside the scope of the temporary recommendations issued by the WHO Director General (WHO, Interim Ebola Panel Report). Consequently, the affected countries faced barriers to receiving emergency supplies and personnel, in addition to the social, economic and political consequences of the pandemic. ## 3.5 Influence of infectious disease on the macro-economy Behavioural change can take different forms but many changes in human behaviour have economic impacts. These behaviour changes may be voluntary and characterised as [[avoidance behaviour]]. This is where consumption is reduced because people opt not to shop or attend entertainment events during a pandemic. As was mentioned earlier, there is some evidence of this taking place during SARS and surveys have indicated that some people would avoid non-essential shopping to avoid infection during an outbreak. Of course, some shopping (e.g. food) is essential and will continue (but may increasingly take place online). Some purchasing may be deferred during an outbreak, but will take place later. This is known as “bounceback”. If, for example, a person needs a new sofa, they may avoid purchasing this during a pandemic, but will purchase it later, making up for the loss to the economy of their deferred purchase. Other expenditure may be lost and not made up for later (visits to the cinema and some domestic travel will resume when an outbreak has passed, but not necessarily increase to a level which will compensate for the loss). In the case of Covid-19, however, vaccines were produced in multiple countries much faster than had been previously thought possible and they were distributed rapidly across the globalised world. To some extent, this was an example of where global health policy over-rode the economic forces which often dictate access to medical treatments. In session 11: The Pharmaceutical Industry, you will learn how wealth and profit can influence the development of pharmaceutical treatments and how they have led to inequitable access to many treatments. In contrast to this, however, the COVAX facility played an important role in the Covid-19 pandemic to reduce inequities in vaccine access. COVAX was designed “to accelerate the development and manufacture of COVID-19 vaccines, and to guarantee fair and equitable access for every country in the world”. More information on COVAX and the mechanism by which this is achieved is beyond the scope of this module but is explained in the video https://youtu.be/5opR6x6NMpQ. However, the COVAX facility is an example of a global health policy approach in a key area where health and economics intersect. Despite the surprisingly rapid and successful production of COVID-19 vaccines in 2020, Covid highlighted that production and rollout of a tested matched vaccine in response to a pandemic can only be completed many months after identification of the disease. As we shall see in the next session, the economic costs accrued to national economies during that time may be substantial. Nonetheless, in the case of pandemics, the use of vaccinations and antivirals may be highly beneficial or, in some cases, essential to enable societies (and economies) to operate relatively normally. # 4. Introduction to macroeconomic analysis The modelling theory or method we present in this session is called CGE modelling. CGE modelling is a good example of a macroeconomic modelling method which can be used to estimate the whole economy impact of a pandemic. This modelling method will be used again in the next session, but you will not need to have any detailed theoretical knowledge of CGE, and will not be expected to understand or reproduce the equations that make up the model. However, an appreciation of how the method works will be helpful to you. ## 4.1 [[Computable General Equilibrium (CGE)]]: An introduction The CGE model specifies the economy in terms of agents: agents could be households (consumers), firms or producers, or the government. Each agent has different resources and different goals from the other agents: households maximise utility from consumption, producers maximise profit. The households are the consumers or shoppers in the economy. They work for the firms and receive wages in return for their labour. They spend their wages by purchasing goods and any money they do not spend is saved. When purchasing or saving, households buy goods in the combination which gives them the most satisfaction or pleasure or utility within the constraints of their budget or income. CGE modelling finds a solution where all of the agent behaviours are satisfied (and optimised) simultaneously. The term “equilibrium” is described in the earlier session and, as the name suggests, CGE modelling requires that the solution of the model represents an economy in equilibrium. So, when the model is solved, the behaviour of all agents, whether households, firms or government, are considered simultaneously and the equilibrium solution is found which is optimum for all agents: that is, given the amount of goods, labour and capital available in the economy, any change would produce a less favourable situation (perhaps by yielding lower profits or a less preferred basket of consumption goods). ## 4.2 Practical model setup Basically due to "economic shock" imposed by the pandemic, the supply demand equilibrium got changed. Fewer workers, lesser productivity, fewer goods, less sales, less profits. Less suply leads to changing consumption pattern by consumers. Having illustrated the principle, we now outline a brief summary of the modelling scenarios from an existing Covid-19 CGE modelling study. More details are available in the source paper which is included in the essential reading list (Keogh-Brown et. al. 2020). ### Direct health effects of Covid To model the health effects of Covid-19, the modellers estimated the number of 1. Symptomatic cases 2. Hospitalised cases 3. Critically ill (intensive care) cases 4. Deaths These were also distinguished by age categories: 0 to 14, 15 to 64 (working age) and Aged 65+. ### Health sector costs For each of the four categories of infected person, the authors also estimated the cost of their healthcare based on the duration and type of hospital care they required (patients of all ages (although there were no hospital costs for non-hospitalised patients). ### Health-related labour impacts For each of the four categories of infected person, the estimate of the number of 15 to 64 (working age) cases in that category was multiplied by the UK employment rate to determine the number of workers affected in each category (i.e. those who were too young to work or retired were not counted as labour supply losses). Different lengths of absence were assumed for each category of worker in the following way: - Symptomatic workers would lose 7 days of work due to Covid - Hospitalised workers would lose 15 days of work due to Covid - Critically ill workers would lose 20 days of work due to Covid - Labour from workers who died would be lost from the time of death to the end of the simulation To calculate the macroeconomic impact of the health effects of Covid, therefore, the modellers shocked the model so that: - The government (whose behaviour is specified in the model) would have to fund additional health costs to pay for the hospitalisations and ICU admissions from Covid - The amount of labour supplied by the UK labour force would be reduced by a proportion equivalent to the work time lost by employed 15 to 64 year olds who were symptomatic, hospitalised, critical or who died ### Wider macroeconomic impacts: non-pharmaceutical interventions One very important aspect of the macroeconomic approach to modelling health is that we are not restricted to disease-only or health sector-only effects. The modellers were therefore able to mirror the UK government’s interventions to mitigate or suppress the spread of Covid-19 in their CGE model application. The following shocks were applied for as long as government lockdowns were in place: **School closures (labour shock)**: The modellers assumed that a proportion of the workforce equivalent to 50% of working mothers would need to take time off if schools were closed. **Business closures (capital and labour shock)**: The modellers removed a proportion of labour and capital from various sectors in the model as this reduced production to imitate business closures. - 90% of labour and capital was removed from the hotels, restaurant, entertainment and recreation sectors (since these were almost completely closed during UK lockdowns) - 50% of labour and capital in non-essential sectors was removed (many of these businesses closed during UK lockdowns) **Home quarantine (labour shock)**: Symptomatic workers were assumed to take longer off work (10 working days rather than 7) during lockdowns when the 14-day UK quarantine requirement was in place for infected individuals. **Duration of lockdowns (mitigation or suppression)**: The duration of the school closures and business closures and home quarantine requirement were assumed to occur over two different durations: - 84 days (shortest lockdown to mitigate the pandemic, temporarily reducing spread) - 207 days (to suppress the pandemic for a longer period, expected to keep hospitalisations within manageable levels) Health adjustment: when the mitigation and suppression interventions were modelled, the effect of those measures was also taken into account in the direct health effects. Closing schools, businesses and home quarantine was assumed to reduce the number of cases, hospitalisations and deaths. Once the shock(s) has been applied, the CGE model compares the initial equilibrium solution (no shocks) with the new (shocked) equilibrium solution across various economic indicators (GDP, savings levels, consumption and production by sector) to estimate the effect of the shock ## 4.3 Published Computable General Equilibrium example The tables below show the headline impacts on GDP which the model estimates for three different scenarios. Disease only (which is just the estimated impact of an unmitigated pandemic), mitigation (where lockdown measures are assumed to be in place for 12 weeks) and suppression (where lockdowns are assumed to be in place for around 207 days of the year 2020). We only point out a few of the main results here, but you may read the paper for more information. The modellers estimated that the (disease only) health-related costs to the whole UK economy if Covid-19 was not mitigated would be £39.6bn (this includes all of the health costs and labour effects). ![[CleanShot 2024-03-09 at 13.43.04.png]] ![[CleanShot 2024-03-09 at 13.43.33.png]] Tools, such as CGE models, may prove helpful in guiding both national and global policies, policies which could potentially save lives while minimising national and global costs of the pandemic. # 5. Integrating activity Finally, spend a few moments considering the concept diagram (Figure 7), which was presented earlier in the session, and how it can be related to the context of infectious disease pandemics. Think about each of the boxes in the diagram and try to think of a way in which these are related to the spread and/or economic cost of a pandemic. You should find that almost every element of the diagram can either influence the spread of the pandemic or is affected by it. Once you have listed these influences it should be clear how much of the global economics of infectious disease has to be analysed using tools which go beyond health-sector focused traditional health economic analyses and how macroeconomics (all markets) is very important. ![[Globalization concept diagram.png]] # 6. Summary To summarise some of the key points, we have seen that pandemics in previous centuries, although sometimes severe, had little discernible economic impact. However, the example of SARS, though less serious in terms of its health impact, had economic repercussions, many of which were related to globalisation, tourism and trade. Since then, both Ebola and, most obviously, Covid-19 have shown that pandemics can have important economic impacts and further highlight the importance of macroeconomic analyses when considering the global economics of infectious disease. We have presented the importance of the IHR and seen how these may have been influential in reducing the economic impact of SARS, and that the WHO could play a key role in identifying a future pandemic and enabling policy decisions which maximise health benefits while taking into account the potential economic costs of those policies. Finally, we have seen an example of macroeconomic modelling and how this technique can be used to predict or assess the potential economic cost of future pandemics and illustrate the situations in which certain policies may or may not be economically beneficial, and be used to guide policymakers as they balance economic and health considerations when reducing transmission. # 7. References ## 7.1 [[Essential readings]] Keogh-Brown MR, Jensen HT, Edmunds WJ, Smith RD. 2020. The impact of Covid-19, associated behaviours and policies on the UK economy: a computable general equilibrium model. Social Science and Medicine - Population Health 12, DOI: 10.1016/j.ssmph.2020.100651 [[@keogh-brownImpactCovid19Associated2020]] Done on printed paper Smith RD. 2006. Responding to global infectious disease outbreaks: lessons from SARS on the role of risk perception, communication and management. Social Science and Medicine 63: 3113–3123. [[@smithRespondingGlobalInfectious2006]] Done on printed paper ## 7.2 [[Recommended reading]] Beutels P, Edmunds W et al. 2008. Partially wrong? Partial equilibrium and the economic analysis of public health emergencies of international concern. Health Economics Letters 17(11): 1317–1322. James S, Sargent T. 2007. The Economic Impacts of an Influenza Pandemic. Department of Finance, Canada. Working Paper, April 2007. Johnson NPAS, Mueller J. 2002. Updating the Accounts: Global Mortality of the 1918-1920 "Spanish" Influenza Pandemic. Bulletin of the History of Medicine; 76(1):105–115. Keogh-Brown MR, Smith RD. 2008. The economic impact of SARS: how does the reality match the predictions? Health Policy 88:110–120. Bennett B, Carney T. 2017. Public Health Emergencies of International Concern: Global, Regional, and Local Response to Risk. Medical Law Review 25:223–239. World Bank. 2014a. The World Bank. Update On The Economic Impact Of The 2014 Ebola Epidemic On Liberia, Sierra Leone, And Guinea. World Bank Group Macroeconomics and Fiscal Management. December 2, 2014 World Bank. 2014b. The Economic Impact of the 2014 Ebola Epidemic: Short and Medium Term Estimates for West Africa. Washington, DC: The World Bank. World Economic Forum. 2016. The Global Risks Report 2016: “3.3 Global Disease Outbreaks”. Geneva: World Economic Forum