VGSF - WU Vienna - LC

Viral Acharya, NYU Stern School of Business

online via Microsoft Teams Live Events 17:30 - 18:45

Organizer VGSF

As part of the ser­ies of the "Fin­ance Re­search Sem­inar", VGSF wel­comes Viral Acharya from NYU Stern School of Busi­ness to present his re­search pa­per.
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Di­vided We Fall: In­ter­na­tional Health and Trade Co­ordin­a­tion Dur­ing a Pan­demic

We ana­lyse the role of in­ter­na­tional trade and health co­ordin­a­tion in times of a pan­demic by build­ing a two-e­conomy, two-­good trade model over­laid with an SIR-­model of in­fec­tion with costly deaths. In­fec­tion starts in one economy and spreads via con­sump­tion and pro­duc­tion within and across econom­ies. In­ter­na­tional goods trade can al­low coun­tries to di­ver­sify eco­nomic and health out­comes across econom­ies; gov­ern­ments can em­ploy (i) “con­tain­ment taxes” to sup­press in­fec­tion spread do­mestic­ally, and (ii) “for­eign (im­port) tar­iffs” to pre­vent in­fec­tion com­ing from abroad. Our main res­ult is that un­co­ordin­ated, i.e., Nash equi­lib­rium, trade policies ad­op­ted by fin­ite-ho­ri­zon, na­tion­al-­man­date gov­ern­ments ro­bustly fea­ture inef­fi­ciently high tar­iffs on for­eign goods and are less sens­it­ive to the state of pan­demic in dif­fer­ent econom­ies re­l­at­ive to the ef­fi­cient risk-shar­ing ar­range­ment. This mag­ni­fies inef­fi­cien­cies of tar­iff wars in the form of lower levels of con­sump­tion and pro­duc­tion, smal­ler gains via di­ver­si­fic­a­tion of in­fec­tion curves across econom­ies, and weaker post-pan­demic eco­nomic re­cov­ery. The model also of­fers novel im­plic­a­tions for the be­ha­vior of terms of trade dur­ing a pan­demic.

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