Lockdowns Require Geographic Coordination because of the Propagation of Economic Effects through Supply Chains

To prevent the spread of COVID-19, many governments have imposed regional or national lockdowns, resulting in economic stagnation across broad areas because the shock of the lockdown propagated to other regions through supply chains. Using supply-chain data of 1.6 million firms in Japan, this study examines how the economic effect of lockdowns in multiple regions interact with each other, particularly focusing on possible differences between synchronous and asynchronous lockdowns. Our major findings are twofold. First, when multiple regions coordinate the timing of their lockdowns, particularly when they impose and lift lockdowns synchronously, their economic losses are smaller than when they do so asynchronously without any coordination. Second, the benefit of synchronous lockdowns in multiple regions is larger when they are connected through a larger number of supply-chain links. Our results suggest a need for policy coordination across regions and countries when lockdowns are imposed.