Diseases, infection dynamics and development 1 Shankha Chakraborty a, ∗ , Chris Papageorgiou b, † , Fidel Pérez Sebastián c, ‡§ a University of Oregon; b International Monetary Fund; c Universidad de Alicante Received Date; Received in Revised Form Date; Accepted Date 2 Abstract 3 The relationship between health and development at the aggregate level is a subject of ongoing 4 debate. This paper contributes to the debate by proposing a general equilibrium theory of infectious 5 disease transmission and rational behavior. Diseases cause premature death, labor productivity loss 6 and lower quality of life. Higher disease prevalence lowers the average saving-investment propensity. 7 This can be counteracted through prevention but only when disease prevalence and externality are 8 relatively low. The model, calibrated to malaria and HIV in sub-Saharan Africa, offers two insights. 9 First, infectious disease can plausibly generate a growth trap where income alone cannot push an 10 economy out of underdevelopment unlike conventional traps in the literature. Second, even when 11 countries converge to the same balanced growth path, the disease ecology significantly impairs the 12 pace of economic development. 13 Keywords: Growth, Health, Infectious Disease, Adult mortality, Morbidity, Malaria, HIV/AIDS 14 JEL classification: E24, I12, O40 15 ∗ shankhac@uoregon.edu † cpapageorgiou@imf.org ‡ Corresponding author: fidel@merlin.fae.ua.es § We are grateful to the editor, Robert King, and an anonyomous referee for insightful comments. For help- ful discussions we thank Angus Deaton, David DeJong, Oded Galor, Nicola Gennaioli, Jeremy Greenwood, Simon Johnson, Peter Lorentzen, Kiminori Matsuyama, Jenny Minier, Marla Ripoll, Andres Rodriguez-Clare, Rodrigo Soares and seminar participants at Alberta, Copenhagen, Cyprus, Melbourne, Navarra, Pittsburgh, UNC-Chapel Hill, USC, CMSG 2005 (Vancouver), NEUDC 2005 (Brown), Demographics and Economic De- velopment 2006 (Stanford), Minerva-DEGIT (Jerusalem), AEA 2008 (New Orleans), SED 2008 (Cambridge), CEPR “Rags to Riches” 2008 (Barcelona), and the Econometric Society 2009 (San Francisco). Hui-Hui Lin provided excellent research assistance. Financial support from the Spanish Ministry of Science and Tech- nology (SEJ 2007-62656), FEDER, and Instituto Valenciano de Investigaciones Económicas is gratefully ac- knowledged. The views expressed in this study are the sole responsibility of the authors and should not be attributed to the International Monetary Fund, its Executive Board, or its management.