Epidemics, production and savings. Why saving is important?

TL;DR

This paper models the interaction between endemic disease dynamics and economic production, highlighting the importance of savings in buffering economies during epidemics and revealing novel interdependencies and optimal savings levels.

Contribution

It introduces a coupled model of disease and economic dynamics, demonstrating the mutual dependence between health and production, and identifying an optimal savings level for economic efficiency.

Findings

Health and economic production are mutually dependent.

Existence of a poverty Malthusian trap in low-capital economies.

An optimal savings level maximizes per capita output.

Abstract

In this work we combing models of disease dynamics and economic production, and we show the potential implications of this for demonstrating the importance of savings for buffering an economy during the period of an epidemic. Finding an explicit function that relates poverty and the production of a community is an almost impossible task because of the number of variables and parameters that should be taken into account. However, studying the dynamics of an endemic disease in a region that affects its population, and therefore its ability to work, is an honest approach to understanding this function. We propose a model, perhaps the simplest, that couples two dynamics, the dynamics of an endemic disease and the dynamics of a closed economy of products and goods that the community produces in the epidemic period. Some of the results of this study are expected and known in the literature but some others are not. We highlight three of them: the interdependence that exists between health and the product of that economy. The majority of the known results only show the dependence in a single direction. Another of the most important goals in this work is to show the existence of a poverty Malthusian trap in economies with low levels of capital investment due to pandemic disease. And another is to show that there is an optimal level of savings that maximizes the \emph{per capita} product of the economy, which is Machiavellian, but has important implications for market efficiency. The model tells us why saving is important in an aggregate economy despite being affected by an epidemic.