Working Paper: CEPR ID: DP14766
Authors: Barthelemy Bonadio; Zhen Huo; Andrei A. Levchenko; Nitya Pandalainayar
Abstract: We study the role of global supply chains in the impact of the Covid-19 pandemic on GDP growth using a multi-sector quantitative framework implemented on 64 countries. We discipline the labor supply shock across sectors and countries using the fraction of work in the sector that can be done from home, interacted with the stringency with which countries imposed lockdown measures. One quarter of the total model-implied real GDP decline is due to transmission through global supply chains. However, "renationalization" of global supply chains does not in general make countries more resilient to pandemic-induced contractions in labor supply. This is because eliminating reliance on foreign inputs increases reliance on the domestic inputs, which are also disrupted due to nationwide lockdowns. In fact, trade can insulate a country imposing a stringent lockdown from the pandemic-shock, as its foreign inputs are less disrupted than its domestic ones. Finally, unilateral lifting of the lockdowns in the largest economies can contribute as much as 2.5% to GDP growth in some of their smaller trade partners.
Keywords: Production networks; International transmission; Pandemic; COVID-19
JEL Codes: F41; F44
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Labor supply shock (J20) | GDP contraction (E20) |
| Global supply chains (F69) | GDP contraction (E20) |
| Renationalization of supply chains (F52) | GDP contraction (E20) |
| Domestic inputs disruption (F69) | GDP contraction (E20) |
| Trade (F19) | Insulation from pandemic shock (F65) |
| Unilateral lifting of lockdowns in major economies (F69) | GDP growth in smaller trade partners (F10) |