Working Paper: NBER ID: w27224
Authors: Barthlmy 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: global supply chains; COVID-19; GDP growth; labor supply shock; renationalization
JEL Codes: F41; F44
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| renationalization of global supply chains (F52) | countries' resilience to pandemic-induced labor supply contractions (J89) |
| foreign input shocks (F41) | domestic GDP contractions (E20) |
| unilateral lifting of lockdowns in large economies (F69) | GDP growth in smaller trade partners (F10) |