Will infectious disease outbreaks cause a decline in investment of real sector firms? Evidence form 2003 SARS outbreak in China

Zhao Zhang, Caoyuan Ma, Han Hu and Hao Li

Applied Economics, 2021, vol. 53, issue 59, 6820-6838

Abstract: The Novel Coronavirus (COVID-19) outbreak prompts researchers and policy makers to re-evaluate the impact of infectious disease on economy. Taking SARS outbreak in 2003 as a quasi-natural experiment, we examined the impact of infectious diseases on Chinese real sector’s investment through a difference in difference (DID) approach. The empirical results show that after the outbreak of SARS, the investment of China’s real sector firms had increased significantly. This conclusion is verified by several robustness tests. The mechanism tests indicate that the SARS epidemic could increase the investment of real sector firms through two paths. First of all, the outbreak of the epidemic led to dramatic fluctuations in the capital market, then companies shifted their assets from the financial market to the relatively low-risk real sector; additionally, in response to the outbreak of SARS, companies and the government reduced operating costs and fees, resulting in a synergistic effect which also increased investment of the real sector.

Date: 2021
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DOI: 10.1080/00036846.2021.1949431

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