DP14766 Global Supply Chains in the Pandemic

Author(s): Barthelemy Bonadio, Zhen Huo, Andrei A. Levchenko, Nitya Pandalai-Nayar
Publication Date: May 2020
Date Revised: April 2021
Keyword(s): COVID-19, International Transmission, Pandemic, production networks
JEL(s): F41, F44
Programme Areas: International Trade and Regional Economics, International Macroeconomics and Finance, Monetary Economics and Fluctuations
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14766

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.