International Policy Coordination in a Multisectoral Model of Trade and Health Policy

Viral V. Acharya (), Zhengyang Jiang (), Robert J. Richmond () and Ernst-Ludwig von Thadden

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

Abstract: The paper analyzes international trade and health policy coordination during a pandemic by developing a two-economy, two-sector trade model integrated into a micro-founded SIR model of infection dynamics. Disease transmission intensity can differ by goods (manufactured versus services and domestic versus foreign). Governments can adopt containment policies to suppress infection spread domestically, and levy import tariffs to prevent infection from abroad. The globally coordinated policy dynamically adjusts both policy instruments heterogeneously across sectors. The more-infected country aggressively contains the pandemic, raising tariffs and tilting the terms of trade in its favor, while the less-infected country lowers tariffs to share its economic pain. In contrast, in the Nash equilibrium of uncoordinated policies the more infected country does not internalize the global spread of the pandemic, lowering tariffs and its terms of trade, especially in the contact-intensive services sector, while the less infected coun- try counters the spread by raising tariffs. Coordination therefore matters: the health-cum-trade war leads to less consumption and production, as well as smaller health gains due to inadequate global diversification of infection curves.

Keywords: Trade War; Terms of Trade; Pandemics; Health Policy (search for similar items in EconPapers)
JEL-codes: E61 F13 F42 H12 (search for similar items in EconPapers)
Pages: 61
Date: 2024-11
New Economics Papers: this item is included in nep-int and nep-opm
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Working Paper: International Policy Coordination in a Multisectoral Model of Trade and Health Policy (2024)
Working Paper: International Policy Coordination in a Multisectoral Model of Trade and Health Policy (2024)
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