The Sectoral Costs of the Pandemic: What is the Role of Openness?

This study investigates the sectoral costs of the shocks during the pandemic period and analyzes the relationship of these costs with the openness of countries and sectors to trade. We use a model that focuses on the demand and supply side relations at the sectoral level. This model measures the effect of supply and demand-side shocks on the economy by exploiting the economic linkages between countries and their sectors using OECD Intercountry InputOutput tables. We compute supply and demand-side shocks concerning the course of the pandemic, and we consider the effects of these shocks on the sectors. The openness of the countries, or the proportions of exports and imports in the GDP of the countries, was taken into consideration when analyzing these effects. The pandemic’s impact on the nation’s economies through trade, such as through import and export channels, is bidirectional. When it comes to exports, the economic downturn seen among trading partners during the pandemic era likewise reduces an open country’s export potential. From the point of view of imports, the disruptions in production and supply chains during the pandemic period spread to the whole world through supply chains and caused problems in the supply of imported inputs. In this context, the results obtained in this article show that open countries have experienced heavier economic losses during the pandemic period. This result is consistent with the fact that open countries are more exposed to demand contraction and supply chain problems due to the pandemic. This finding is demonstrated by considering Turkey and Brazil as two examples, which have different openness structures. When we compare the costs of the pandemic period between Turkey, which is an emerging market with a high openness to trade, and Brazil, which is a relatively closed economy, it is seen that the costs computed for Turkey are higher. When we focus on the results in more detail, we observe that the sectoral costs are widespread in Turkey due to supply problems, and losses in sectors such as real estate, construction, and manufacturing, which have a high dependence on imported intermediate goods in their production, are higher than in Brazil. When we compare the US and the Netherlands, two developed countries, we find that the Netherlands, with its high level of openness, has higher costs.