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With an introduction by Markus Brunnermeier, Director of the Princeton Bendheim Center for Finance

On Thursday, November 12, Stephen Redding joined Markus’ Academy for a lecture on recent work studying the relationship between pandemics and globalization. The research is joint work with Harvard’s Pol Antras and Princeton’s Esteban Rossi-Hansberg.

Stephen Redding is a Professor of Economics at Princeton University.

Watch the full presentation below and download the slides here. You can also watch all Markus’ Academy webinars on the Markus’ Academy YouTube channel.


Executive Summary

As it did during the Black Death in the 14th century, business traveland people travelling for tradeplayed a role in the spread of COVID-19. The first human-to-human transmission of COVID-19 in Europe occured in Germany when a local car parts supplier (Webasto) organized a training session with a Chinese colleague from Wuhan, China. In 1347, it was twelve ships from the Black Sea that first brought the plague to Europe. A key question that motivates Redding’s research is how trade and disease dynamics affect pandemics.

In the open economy, whether a pandemic occurs depends on the country that has the worse disease environment. Even if one country has a great disease environment, trading with a country with an unhealthy disease environment creates a pandemic. This is true even when interactions are limited. Any amount of interaction, no matter how small, eventually brings both countries into a pandemic.

But it’s also possible that more globalization can prevent pandemics or lessen their severity. This occurs when countries have different disease environments. When barriers to interactions are reduced, people choose to interact with those in countries with better disease environments. Surprisingly, this can even result in reducing the infection rate in the country with the healthy disease environment despite an increase in the number of interactions in that country.

Not considering the effects of the pandemic, globalization may slow as we emerge from a period of “hyper-globalization.” Addressing whether the pandemic will slow globalization, Redding notes that the period between the mid 1980s and early 2000s has been referred to as a period of “hyper-globalization,” largely due to trade liberalization globally and regionally and new technologies that facilitate Global Value Chains. Redding says that while there’s no conclusive evidence of significant de-globalization in recent years, it’s likely we’ll see a slow in growth of globalization with or without considering the effects of COVID-19.