DP14766 Global Supply Chains in the Pandemic

Author(s): Barthelemy Bonadio, Zhen Huo, Andrei A. Levchenko, Nitya Pandalai-Nayar
Publication Date: May 2020
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 for 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. Using the quantitative framework and methods developed in Huo, Levchenko, and Pandalai-Nayar (2020), we show that the average real GDP downturn due to the Covid-19 shock is expected to be -31.5%, of which -10.7% (or one-third of the total) 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. The average GDP drop would have been -32.3% in a world without trade in inputs and final goods. This is because eliminating reliance on foreign inputs increases reliance on the domestic inputs, which are also subject to lockdowns. Whether renationalizing supply chains insulates a country from the pandemic depends on whether it plans to impose a more or less stringent lockdown than its trading partners. Finally, unilateral lifting of the lockdowns in the largest economies can contribute as much as 6-8% to GDP growth in some of their smaller trade partners.