Pandemics, capital allocation and structural change

Basco, Sergi and Roses, Joan R. ORCID: 0000-0003-0661-3134 (2025) Pandemics, capital allocation and structural change. Economic History Working Papers (378). London School of Economics and Political Science, London, UK.

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Abstract

The economic impact of pandemics is commonly studied using theoretical models that assume constant returns to scale and no factor movements. This article argues that a new economic geography model with increasing returns to scale and capital mobility better explains the effects of pandemics in modern economies. Our model predicts that pandemics shape where investments are made, leading to long-term impacts on economic development. To test this, we examine the consequences of the Great Influenza Pandemic on credit allocation and structural transformation in Spain from 1915 to 1929. Our research shows that credit growth was lower in regions with high mortality. Quantitatively, a one standard deviation increase in flu-driven mortality decreases credit (per capita) by 13.6%. We also document that this flu-driven reallocation of credit resulted in an increase in relative urban GDP in low mortality rate regions. A one standard deviation increase in flu-driven credit raises relative urban GDP by 9.5%.

Item Type:	Monograph (Working Paper)
Official URL:	https://www.lse.ac.uk/Economic-History/Working-Pap...
Additional Information:	© 2025 The Authors
Divisions:	Economic History
Subjects:	H Social Sciences > HC Economic History and Conditions R Medicine > RA Public aspects of medicine
JEL classification:	E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations; Cycles N - Economic History > N1 - Macroeconomics and Monetary Economics; Growth and Fluctuations > N10 - General, International, or Comparative N - Economic History > N3 - Labor and Consumers, Demography, Education, Health, Income, and Wealth > N30 - Economic History: Labor and Consumers, Demography, Education, Health, Income and Wealth: General, International, or Comparative (Migration) N - Economic History > N9 - Regional and Urban History > N90 - General, International, or Comparative O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O11 - Macroeconomic Analyses of Economic Development
Date Deposited:	17 Jul 2025 09:03
Last Modified:	17 Jul 2025 23:18
URI:	http://eprints.lse.ac.uk/id/eprint/128853

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