Pandemic Effects in the Solow Growth Model

We show how diseases can affect economic growth in a Solow growth model, with population growth and no technical progress, but modified to include a saving rate that depends on the health status of the individual. We couple this model, in turn, with the SIS and SIR models of disease spreading. In these two models the spread of the infection proceeds according to the so called basic reproductive number. This number determines in which of the two possible equilibria, the disease free or the pandemic equilibrium, the economy ends. By inserting these two models of disease in our extended Solow growth model, we show that the steady state capital stock per non infected individual and output per capita are lower in the pandemic equilibrium, reflecting a contraction in the economy’s production possibilities frontier.