How does interconnectedness affect the course of a pandemic? What are the optimal containment policies in an economy with connected regions? We embed a spatial SIR model into a multi-sector quantitative trade model. We calibrate it to US states and the COVID-19 pandemic and find that interconnectedness increases the death toll by 146,200 lives. State-level policies that reduce within-state economic activity mitigate welfare losses by more than a uniform national policy or a policy that only reduces mobility between states. The optimal policy in mitigating welfare losses generated by the pandemic combines local within- and between-state restrictions and saves 289,300 lives, despite significantly exacerbating economic losses and imposing mobility restrictions across states. Different timing of policies across states is key to minimize welfare losses. States like South Carolina might have imposed internal lockdowns too early but travel restrictions too late.
All Science Journal Classification (ASJC) codes
- Economics and Econometrics
- Urban Studies