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Economic expected losses and drawback dangers due to the Spanish flu

Economic anticipated losses and downside threats due to the Spanish flu

Roberto De Santis, Wouter Van der Veken

Understanding the economic effects of a global pandemic is a key obstacle for the economics occupation. This column analyses the 1918-1920 Spanish flu to acquire insights about the expected output losses and disadvantage threats from such an occasion. It estimates a typical output drop of 7% around the world throughout the years 1918-1920, increased macroeconomic threats, and a boost in earnings inequality throughout nations. The expected real income loss is almost twice as large for lower-income nations. When it comes to the US, the approximated output fall due to the Spanish influenza is small, but the macroeconomic dangers are not minimal.

Measuring the predicted output loss due to the spread of Covid-19 and evaluating the macroeconomic dangers connected with the pandemic are both challenges for the financial occupation. In a current paper (De Santis and Van der Veken 2020), we try to learn from the Great Influenza Pandemic (known likewise as the Spanish flu), which began in 1918 and continued till 1920, causing the death of about 40-100 million people across the world (Hatchett et al. 2007, Barro et al. 2020). Pandemic outbreaks are uncommon events generating non-normal financial effects throughout nations. Therefore, we utilize a non-linear design, covering the large majority of nations on the planet. The model permits us to construct the conditional distribution of genuine per-capita GDP development as a function of the Spanish flu mortality rate, which is then utilized to quantify the effect of the Spanish flu.

Effect of the Spanish influenza

Figure 1 shows the unconditional circulation of genuine per capita GDP growth utilizing 42 countries on a yearly basis. Real per-capita GDP growth is on the horizontal axis and the relative frequency is on the vertical axis. The circulations illustrated by the strong and rushed lines utilize growth rates over the sample period 1901-1929 and the Spanish flu (1918-1920) period, respectively. The distribution over the Spanish influenza period is characterised by a relatively higher variety of unfavorable growth rates and by a curve, which is more skewed, highlighting the benefit of the non-linear approach.

Figure 1 Genuine per capita GDP development (%).

Source: Figure 1 in De Santis and Van der Veken (2020 ).

By exploiting the death rates across countries due to the Spanish flu and managing for the death rates due to WWI, Barro et al. (2020) reveal that the loss in terms of real per-capita GDP for a common nation due to the Spanish flu amounts to 6.0% cumulated over the 1918-1920 period. Utilizing the non-linear design and the exact same dataset, we substantiate the cumulated drop in economic activity of 7% for the normal country due to the pandemic disease (see anticipated worth in Panel A of Table 1). About 70% of the estimated financial damage takes place in the first year.

Table 1 Estimates of the impact of the Spanish influenza on genuine per-capita GDP (%).

Source: Tables 1-2 in De Santis and Van der Veken (2020 ).

We also study the disadvantage dangers, which ought to be translated as output losses in addition to the anticipated losses. 2 steps are computed, associated to a realisation of (1) a ‘bad’ circumstance (a draw from the conditional distribution of the GDP growth rate that results in a negative GDP development rate), and (2) a ‘even worse’ scenario (a draw from the 10% worst possible outcomes of the conditional circulation). In the bad situation, we anticipate financial activity to drop by 5.5% in 1918 relative to the mean, while in the even worse circumstance, we expect economic activity to drop by an astonishing 19.6% relative to the average (Table 1, Panel A). This is visible in Figure 2, which reveals that the left tail of the conditional circulation (i.e. more unfavorable values) of real per-capita GDP development increases dramatically due to the Spanish flu.

Figure 2 Price quotes of the impact of the Spanish influenza on real per capita GDP growth.

Source: Figure 3 in De Santis and Van der Veken (2020 ).

Impact of the Spanish flu on higher-income and lower-income nations.

The pandemic influenza can increase income inequality throughout countries, due to the fact that it has a disproportionate burden on low-skilled employees and due to the fact that transmittable diseases and their associated death toll can spread out more quickly in lower-income countries, given the high health care expenses and public costs required to contain the infection. Economists are worried that pandemic illness raise inequality. We support this concern. We approximate that the anticipated real earnings loss due to the pandemic is twice as big for lower-income nations (9.8%) compared to higher-income nations (4.7%) cumulated between 1918 and 1920 (see anticipated worth in Table 1, Panel B). In addition, macroeconomic threats related to the pandemic, while big for higher-income countries, are tremendous for lower-income countries (see scenarios in Panel B of Table 1).

When it comes to the United States, our results (see Panel C of Table 1) remain in line with the observation in Burns and Mitchell (1946) and Velde (2020 ), who argued that the United States economic downturn in 1918-1919 was short and of moderate amplitude. Nevertheless, the quotes of the macroeconomic risks due to the Spanish flu for the United States are not minimal when it comes to the worse scenario. Another beneficial case is Spain, which was one of only a few major European nations to remain neutral throughout WWI. The media in this nation could report freely and in depth on the advancements of the pandemic. This discusses why the pandemic became typically called the ‘Spanish flu’. Our results reveal that the output loss in Spain was rather large, together with the associated drawback dangers in financial activity.

Death rates used as regressors

These outcomes count on the hypothesis that the death rates during the Spanish influenza do not depend on federal government policies impacting financial activity. To the degree that policies targeted at decreasing the spread of the influenza infection caused a drop in output, the impact of the Spanish influenza on financial activity would be undervalued. In this case, the quotes would not only reflect the unfavorable impact of death rates on economic activity, however they would also capture the positive relation in between both variables induced by the policy measures (e.g. lockdown measures).

Our company believe that this problem during the Spanish flu is negligible for 3 main reasons connected to: (1) the structure of the global economy, which was more depending on farming and production, and the absence of generalised lockdown procedures; (2) interaction, including the wartime censorship; and (3) the impact of WWI on economic activity.

By looking for in-depth details on the United States Library of Congress tool ‘Chronicling America’ in addition to other public means, we concluded that federal governments across the globe did not enforce the closure of non-essential companies throughout the Spanish flu duration, however mainly embraced social distancing steps, which impacted organization activities such as theatres, image homes, and music halls that accounted for a minimal fraction of genuine GDP globally. At that time, the majority of the interaction was carried through papers. In several countries, in order to keep morale, wartime censors refused papers to report on the illness and its severity. At the time, WWI was at its end. It was unconceivable to shut down non-essential services. Federal governments could not manage it. There may have been significant social as well as financial pressures to remain on the task (IMF 2006). In the United States, the economic sector even asked workers to deal with Sundays to fulfil the war-related demand despite the scarcity of labour, as employees ended up being ill.

Lessons for the COVID-19 pandemic

Research studies examining the financial implications of the COVID-19 pandemic are growing quickly. We tried to gain insights from the Spanish influenza, an episode for which we estimate a large output loss together with high disadvantage risks. These prospective severe financial losses, which a nation might deal with, can describe the request for swift policy actions by lead financial experts and policymakers worldwide and the prompt for big fiscal and monetary policy interventions globally, after the spread of COVID-19 in 2020. Although the mortality rate due to the COVID-19 pandemic will be much lower, due to the health infrastructure, the rigid lockdown steps, and the basic understanding about the illness, the insights from the Spanish flu ought to not be dismissed. The threat of a sharp fall in financial activity near two digits is genuine.

If one might isolate the impact of federal government macroeconomic policies introduced to neutralize the Covid-19 pandemic on the economy, one may even anticipate a bigger output loss, provided the unfavorable effect of the pandemic on international supply chains, due to the restrictions on worldwide travel, and the large role of services in the worldwide economy, which are more impacted by social distancing measures.

Finally, our results support the view of worldwide economic organisations, such as the World Bank and the United Country Advancement Programme (UNDP), which argue that the COVID-19 pandemic will leave deep scars in lower-income countries, unless immediate policy action is taken with assistance from the global neighborhood.


Barro, R J, J F Ursúa and J Weng (2020 ), “The coronavirus and the Great Influenza Pandemic. Lessons from the “Spanish Influenza” for the Coronavirus’s potential effects on death and financial activity”, NBER Working Paper, No. 26866.

Baldwin, R and B Weder di Mauro (2020 ), Mitigating the COVID recession: Act fast and do whatever it takes, a eBook, London: CEPR Press.

Benmelech, E and C Frydman (2020 ), “The 1918 influenza did not eliminate the United States economy”,, 29 April.

Burns, A F and W C Mitchell (1946 ), “Measuring Organization Cycles”, National Bureau of Economic Research Study.

Chudik, A, K Mohaddes, M H Pesaran, M Raissi and A Rebucci (2020 ), “A Counterfactual Economic Analysis of COVID-19 Using a Threshold Augmented Multi-Country Model”, NBER Working Paper 27855.

Correia, S, S Luck and E Verner (2020 ), “Combat the pandemic, save the economy: Lessons from the 1918 Flu”, Federal Reserve Bank of New York City, Liberty Street Economics.

De Santis, R A and W Van der Veken (2020 ), “Macroeconomic threats across the globe due to the Spanish Flu”, ECB Working Paper Series, No. 2466.

International Monetary Fund (2006 ), “The Spanish flu of 1918-19”, World Economic Outlook, April 2006, Ch. 1, pg. 65.

Furceri, D, P Loungani, J D Ostry and P Pizzuto (2020 ), “Will COVID-19 impact inequality? Proof from previous pandemics”, COVID Economics 12: 138-57.

Hatchett, R J, C E Mecher and M Lipsitch (2007 ), “Public health interventions and epidemic intensity during the 1918 influenza pandemic”, Proceedings of the National Academy of Sciences of the United States of America 104 (18 ): 7582-7587.

Lilley, A, M Lilley and G Rinaldi (2020 ), “Public health interventions and financial growth: Reviewing the Spanish Flu evidence”, Harvard University Working Paper.

Ludvigson, S C, S Ma and S Ng (2020 ), “COVID-19 and the Macroeconomic Impacts of Expensive Catastrophes”, NBER Working Paper No. 26987.

McKibbin, W J and R Fernando (2020 ), “The Global Macroeconomic Effects of COVID-19: 7 Circumstances”, CAMA Working Paper 19/2020.

Velde, F (2020 ), “What happened to the United States economy throughout the 1918 Influenza Pandemic? A view through high-frequency data”, FED Bank of Chicago Working Paper Series, No. 2020-11.

World Bank (2020 ), Global Financial Prospects, Washington DC.


1 The dataset is offered on the Harvard site:.

2 The extent to which the anticipated worth of that distribution drops in response to the presence of Spanish flu deaths shows how highly one can anticipate GDP to fall due to the Spanish flu in each particular nation and year. Similarly, the degree to which the left tail of this conditional circulation becomes more vital as influenza deaths develop, allows us to measure how strongly macroeconomic threat reacts to the Spanish flu. For the quantification of macroeconomic risk based on the left tail, we either use the part of the circulation that covers unfavorable growth rates (i.e. ‘bad scenario’, cf. infra) or the part of the distribution that covers the 10% most adverse outcomes (i.e. ‘even worse situation’, cf. infra).

3 The macroeconomic risk is calculated by deducting the typical to manage for a possible shift of the main tendency. To approximate the effect of the Spanish flu, we deduct from the macroeconomic risk a similar step conditioning on the observed aggregate war death rates however setting at zero the influenza death rates. For technical details see De Santis and Van der Veken (2020 ).

4 A poll of financial experts found that the huge majority are concerned that COVID-19 will raise inequality (see See likewise Furceri et al. (2020 ).

5 Correia et al (2020) document a considerable drop in United States economic activity due to the Spanish flu, which has actually been challenged by Lilley et al. (2020 ).

6 See.

7 Just one out of 17 United States cities stated basic company closures (Hatchett 2007). Just prophylactic procedures were required to decrease the spread of the Spanish flu (World Bank 2020, pg. 135).

8 In assistance of our assumption, Velde (2020) discovers that the epidemic and public health interventions had small negative to zero results on United States retail sales, work, pig-iron production, and bank loans.

9 As far models focusing on output, Ludvigson et al. (2020) measure the macroeconomic effect of Covid-19 in the US, Chudik et al. (2020) establish a multi-country econometric model, and McKibbin and Fernando (2020) check out the worldwide macroeconomic impacts using scenarios analysis.

10 See the collection of short articles in Baldwin and di Mauro (2020 ).

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