Economic geography of contagion: A study on Covid-19 outbreak in India

We propose a mechanism based on regional inequality in economic activity to explain the heterogeneity in the spread of Covid-19 and test it using data from India. The contagion is expected to spread at a higher rate in regions characterized by greater movements of goods and service. We argue that mobility will be higher in regions with greater degree of intra-regional inequality in economic activity. Such regions are usually characterized by core-periphery economic structure in which the periphery remains dependent on the core for the supply of jobs, goods, and services. Such dependence leads to greater degree of mobility between the core and periphery which in turn leads to higher rate of contagion. Using nightlights data to measure regional inequality, we find evidence in support of our hypothesis. Using mobility data, we provide direct evidence in support of our proposed channel; the positive relationship between regional inequality and Covid-19 infection is driven by mobility. Our findings suggest that policy responses to contain Covid-19 contagion needs to be heterogeneous across India where the priority areas can be chosen ex ante based on a regional inequality-based criterion.