Question
Robert J. Barro, Jos F. Ursa, and Joanna Weng in a recent NBER working paper No. 26866 entitled Lessons from the Spanish Flu for the
Robert J. Barro, Jos F. Ursa, and Joanna Weng in a recent NBER working paper No. 26866 entitled "Lessons from the "Spanish Flu" for the Coronavirus's Potential Effects on Mortality and Economic Activity" examined mortality and economic contraction during the 1918-1920 Great Influenza Pandemic (Spanish flu) and has provided plausible upper bounds for outcomes under the coronavirus (COVID-19). Data for 43 countries imply flu-related deaths in 1918-1920 of 39 million, or 2.0 percent of world population. Their regression results on gdp per capita growth are shown in next table. There are two models estimated. Model (1) and (2).
Table1: The standard errors of the coefficient estimates are shown in parenthesis. *** shows significant at the 1 percent level, ** at 5 percent level and * at the 10 level.
Note that GDP growth rate refers to the annual real growth rate per capita GDP (measured not in %). The sample is from 1901 to 1929. It covers 43 nations or countries constitutes 89% of the estimated world population in 1918. The flu death rate is deaths relative to the population for each nation. The Spanish flu took place from January 1918 until December 1920. Values outside the 1918-1920 are zero. War refers to WWI which took place from July 28, 1914 to November 11, 1918. War death rate is deaths over population and values outside the 1914-1918 period were assigned a value of zero.
Model (2) includes past lags of the flu and war death rates. Past (lags of) flu rates and war death rates are averages of annual past (lags) 1 to 4 years. The 2ndlag are averages of past (lags) 5 to 8 years. Estimation is using data over time and across the 43 nations using least squares.
Based on the above information answer the following questions:
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1.What is the estimated world population during the 1918-1920 period given that 39 million people died? (1 mark)
2.The Spanish flu killed 2% of the world population back in 1918-1920. How many would die today from Covid-19 if the virus had the same effect on today's world population? How many have died until today from Covid-19 worldwide (Hint: google it!) ? (2 marks)
3.Using model 1 if the Spanish flu and WWI did not happen what is the average growth rate of GDP per capita across all the 43 nations? In how many years would GDP per capita double if such a rate persisted into the future? (1 mark)
4.Using model 1 what is the effect of the flu death rate on GDP per capita growth given that 2% of the population died because of the flu? (Hint use as flu death rate = 0.02)(1 mark)
5.Construct a 95% confidence interval of the impact of the flu death rate on GDP per capita growth and assess what is the worst and best impact on GDP per capita growth given that 2% of the population died. (2 marks)
6.The IMF recently came up with 2020 projections that world GDP will fall by 3.3% due to COVID-19. Given that world population is expected to grow at a rate of 1% what is the growth rate of GDP per capita? (Hint: Growth rate of GDP per capita = growth rate of GDP - growth rate of population). How does this compare to your answer in 4 and 5 above? (2 mark)
7.List the variables that are not significant in model (2).(1 mark)
8.Show why the flu death rate has two stars ** and not *** or * in model 1. (2 marks)
9.During WWI combat-related military deaths were 6.2 million (or 20 million if we include all WWI related deaths). The war death rate for 1914-1918 for the 43 nations was estimated at 0.47% (Hint use 0.0047 for the War death rate). What is the effect of WWI on GDP growth in model 1? Are wars worse than the Great Influenza Pandemic on GDP in model 1 in terms of impact on GDP per capita growth? (2 mark)
10.Using model (2) what is the total effect of the flu death rate on GDP growth (Hint: Set the flu death rate = lag of flue death rate =2ndlag of the flu death rate and at the coefficients). Is the total effect significant? (1 mark)
11.Using model (2) what is the total effect of the War death rate on GDP per capita growth rate? (Hint: Set the war death rate = lag of war death rate =2ndlag of the war death rate and add the coefficients). Is the total effect significant? (1 mark)
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