The epidemic effect: Epidemics, institutions, and human capital development


The virulence and human cost of recent epidemics have reignited policy debates on optimal strategies to mitigate the economic burden of infectious diseases. One of the most rigorously debated policies is providing aid funding or other forms of stimulus to areas affected by epidemics. How effective are these aid-funding strategies in mitigating the negative effects of epidemics? The declaration of national epidemics for countries by global health governance organizations, which is based on certain thresholds of infectious disease cases, may trigger an influx of disaster aid and financing efforts that can improve human capital outcomes and reverse the negative effects of epidemics. Our work provides key insights into this epidemic effect.

In this study, we investigate the following: (i) How do epidemics of infectious disease affect human capital development? and (ii) what roles, if any, do global governance institutions play in mitigating these impacts? Exploiting exposure to meningitis shocks and epidemic years in the African meningitis belt, we assemble data on meningitis cases, epidemics, the flow of the World Bank’s aid expenditure, and child health outcomes to investigate the effects of epidemics on human capital outcomes. The meningitis belt comprises approximately 23 African countries, extending from Senegal to Ethiopia, and over 700 million individuals frequently exposed to meningitis epidemics as shown in Figure 1a. The epidemic1 form of meningitis is caused by the bacterium Neisseria meningitidis and is characterized by an infection of the meninges, which is the thin lining covering the brain and spinal cord. Direct transmission is through contact with respiratory droplets or throat secretions from infected individuals (LaForce et al., 2009; Garc´ıa-Pando et al., 2014). Infection is associated with fevers, pain, and reduced cognitive function; in the worst cases, it can also lead to permanent disability and long-term neurological damage and death. Young children and adolescents are particularly at risk of infection, and epidemics can be very costly for households. Households in the belt spend up to 34% of per capita GDP on direct and indirect costs related to meningitis epidemics (Colombini et al., 2009).

We exploit quasi-random variation in district-level exposure to meningitis shocks and country-year variation in the announcement of an epidemic year to examine these effects within a panel regression framework. Our meningitis shock variable is constructed from a new dataset of mean weekly meningitis cases per 100,000 population for districts across eight countries in the belt between 1986 and 2008. The shock variable is an indicator that equals one if meningitis cases within a given year exceed the district’s standardized longterm mean, following the definition of epidemics outlined by the WHO (WHO, 2020).2

We examine the effects of meningitis shocks on child health outcomes, such as stunting or underweight status. The results on child health are economically important, given the vast literature linking child stunting and underweight status, both of which are primary markers of malnutrition, with poor cognitive and earnings outcomes in adulthood (Jayachandran and Pande, 2017; Bisset et al., 2013).3 In other words, individuals who are shorter and underweight as children have worse health outcomes, lower cognitive ability, and lower earnings as adults than their peers. The results show that meningitis shocks or high, unexpected levels of meningitis are associated with significant reductions in child health outcomes, reflected in increased incidence of stunting and underweight status, particularly during non-epidemic years. The effect of meningitis shocks on child health is nonlinear. Meningitis shocks in- crease child health outcomes during years declared by the WHO as epidemic years and reduce health outcomes during non-epidemic years. Children born in meningitis shock areas during a year declared as an epidemic year are 8.2 percentage points (pp) less underweight and 10 pp less stunted than their nonepidemic year born peers. Overall, being born in a meningitis shock district during a declared epidemic year reduces the incidence of being underweight by 4.1 pp, compared to an increase in the incidence of being underweight by 4.1 pp for children born in meningitis shock districts during non-epidemic years. Similarly, being born in a meningitis shock district during a declared epidemic year reduces the current incidence of being stunted by 5.6 pp, compared to an increase in the incidence of being stunted by 4.4 pp for children born in meningitis shock districts during non-epidemic years.

We find evidence for the crowd-out of routine vaccinations during declared epidemic years. On average, meningitis shocks are associated with an increase in total vaccinations, including routine childhood vaccines for tuberculosis (BCG), polio, diphtheria, pertussis and tetanus (DPT), and measles. We find heterogeneous effects, depending on whether the WHO declares an epidemic year. During a declared epidemic year, children born in meningitis shock districts experienced a 20% relative reduction in their total vaccinations received, and their peers born in shock districts during non-epidemic years experienced a 13% increase in total vaccinations received relative to the sample mean. While weight and height improve for children born in meningitis shock areas during declared epidemic years, routine vaccinations decline, as domestic and international organizations focus on meningitis vaccination in these areas. We conduct several robustness checks on our results, and provide evidence that selective migration does not appear to be driving our results.

We show that a primary mechanism explaining the heterogeneity in the results and the reversal of the negative effect of meningitis shocks on economic outcomes during declared epidemic years is the influx of health aid when the WHO announces an epidemic year, which may offset the negative income shock owing to increased costs resulting from meningitis shocks. We document an increase in World Bank health aid projects funded in meningitis shock districts during declared epidemic years. The funding epidemic effect is redistributive, with funds flowing away from non-health to health sector projects. The results suggest that global governance organizations, such as the WHO, play an important role in mitigating the adverse effects of epidemics, partly by coordinating decisionmaking and funding behavior of international agencies around the disbursement of health aid to affected regions.

We add to several distinct literatures. First, our work is related to the economics literature on the economic burden of infectious diseases and early life shocks (Acemoglu and Johnson, 2007; Adhvaryu et al., 2019; Almond, 2006; Bleakley, 2007; Bloom and Mahal, 1997; Dupas and Robinson, 2013; Adda, 2016; Rangel and Vogl, 2019; McDonald and Roberts, 2006; Maccini and Yang, 2009; Christensen et al., 2021). These studies have demonstrated that exposure to health shocks like infectious diseases in early life can affect various future life outcomes, including school enrollment, performance, and attainment (Bleakley, 2007; Archibong and Annan, 2017; Fortson, 2011), gender inequality (Archibong and Annan, 2019), and labor market outcomes (Almond, 2006; Gould, Lavy, and Paserman, 2011; Bhalotra and Venkataramani, 2015). Recent literature has explicitly focused on epidemics and examined the effects of individual and coordinated government responses to epidemics on societal well-being (Fitzpatrick et al., 2021; Maffioli, 2021; Christensen et al., 2021; Xu, 2021). The studies have highlighted the importance of local accountability in health systems in managing epidemics like the 2014 Ebola epidemic (Christensen et al., 2021), and representation in government bureaucracies as a mitigating factor in reducing mortality during the 1918 pandemic (Xu, 2021). We expand the literature by providing quantitative estimates of the economic impacts of epidemics and the role of global governance institutions in mitigating the adverse effects of epidemics through policy coordination.

Our work also contributes to the economics literature on the role of aid in development (Alesina and Dollar, 2000; Burnside and Dollar, 2000; Easterly, 2006; Nunn and Qian, 2014; Br¨autigam and Knack, 2004; Deserrano, Nansamba, and Qian, 2020; Aldashev, Marini, and Verdier, 2019). Although some studies have found mixed results on the benefits of foreign aid for development (Burnside and Dollar, 2000; Moyo, 2009), more recent literature has noted that health aid may have positive impacts on human capital outcomes, particularly in assetconstrained regions (Odokonyero et al., 2015; Kotsadam et al., 2018; Gyimah-Brempong, 2015; Miguel and Kremer, 2004; Bandiera et al., 2019; Ndikumana and Pickbourn, 2017; Mishra and Newhouse, 2009). These studies have highlighted heightened incentives of domestic governments to comply with donor agencies regarding aid in the public health sector (Dietrich, 2011). Our study provides quantitative evidence on the positive effects of health aid in reversing the negative effects of epidemics, wherein aid increases in response to epidemic announcements.

The rest of the paper is organized as follows. Section 2 provides a brief background on infectious disease epidemiology and associated costs, with a focus on meningitis epidemics. Section 3 describes the data. Section 4 outlines our empirical strategy and presents results on the effects of meningitis epidemics on human capital development outcomes. Section 5 provides quantitative estimates on the role of World Bank aid as a potential mechanism that explains the results. Section 6 concludes.

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