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  5. COVID-19 and Supply Chains
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COVID-19 and Supply Chains

Paper Session

Tuesday, Jan. 5, 2021 3:45 PM - 5:45 PM (EST)

Hosted By: American Economic Association
  • Chair: Pol Antràs, Harvard University

Global Supply Chains in a Pandemic

Nitya Pandalai-Nayar
,
University of Texas-Austin
Barthélémy Bonadio
,
University of Michigan
Zhen Huo
,
Yale University
Andrei A. Levchenko
,
University of Michigan

Abstract

We study the role of global supply chains on 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 share 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 quantify the average GDP downturn due to the Covid-19 shock and assess the fraction of the downturn that can be attributed to transmission through global supply chains. We then conduct three counterfactuals. We first assess the average GDP decline in a world in which countries did not trade inputs or final goods. Second, we study the role of increased demand for health services when sectoral labor supply is restricted. Finally, we simulate the "opening up" of countries in isolation, and show the GDP impacts are heterogeneous and depend on the countries' sectoral composition and role in the supply chain.

Cutting Global Value Chains To Safeguard Against Foreign Shocks?

Peter Eppinger
,
University of Tübingen
Gabriel Felbermayr
,
Kiel Institute for the World Economy
Oliver Krebs
,
University of Tübingen
Bohdan Kukharskyy
,
City University of New York

Abstract

The supply chain contagion sparked by the Covid-19 pandemic has brought an important question to the forefront of the policy debate: Can cutting global value chains (GVCs) benefit a country by shielding it from foreign shocks? Using a quantitative trade model we find that shutting down GVCs causes substantial welfare losses in all countries. In this counterfactual world without GVCs, the international repercussions of a Covid-19 shock in China are reduced on average, but magnified in some countries. A unilateral repatriation of all GVCs by the U.S. would reduce national welfare by 1.6% but barely change U.S. exposure to a foreign shock. More generally, we find across a wide range of scenarios that the reduction in shock exposure due to decoupling does not compensate the direct welfare costs.

Sectoral Effects of Social Distancing

Basile Grassi
,
Bocconi University
Jean-Noël Barrot
,
Massachusetts Institute of Technology
Julien Sauvagnat
,
Bocconi University

Abstract

The health crisis caused by the outbreak of the Covid-19 virus has led many countries to implement drastic social distancing rules. By reducing the quantity of labor, social distancing in turn leads to a drop in output which is difficult to quantify without taking into account relationships between sectors. Starting from a standard model of production networks, we analyze the sectoral effects of the shock in the case of France. We estimate that six weeks of social distancing brings GDP down by 5.6%. Apart from sectors directly concerned by social distancing measures, those whose value added decreases the most are upstream sectors, i.e. sectors most distant from final demand. The same exercise is carried out for other European countries, taking into account national differences in sectoral composition and propensity to telework. Finally, we analyze the economic impact of selectively phasing out social distancing by sector, region or age group.

Supply Chain Bottlenecks in a Pandemic

Vasco M. Carvalho
,
University of Cambridge
Matthew Elliott
,
University of Cambridge
John Spray
,
University of Cambridge

Abstract

We consider how a firm’s position in a production network can make it essential for the production of specific goods and services. We develop a tractable theory of production networks which introduces the notion of a bottleneck: a firm whose removal from the network leads to a sufficiently large fall in aggregate output such that supply can no longer meet demand. The location of these bottlenecks can depend not only on a firm’s immediate connections, but also on the entire structure of the network. Building on the theoretical framework, we develop a network algorithm to identify bottlenecks in an economy wide production-network. The input to this algorithm is all transactions in an economy, the output is the set of bottleneck firms that preclude the economy from operating at first-best. We then apply these tools, at scale, in Uganda, as a proof of concept. We show that bottleneck firms have significantly larger profits, sales, wage bills, and have higher mark-ups. They are also located in industries which have fewer new entrants.
Discussant(s)
David Rezza Baqaee
,
University of California-Los Angeles
Davin Chor
,
Dartmouth College
Nitya Pandalai-Nayar
,
University of Texas-Austin
Basile Grassi
,
Bocconi University
JEL Classifications
  • F1 - Trade
  • L1 - Market Structure, Firm Strategy, and Market Performance