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Production networks and epidemic spreading: How to restart the UK economy?

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  • Pichler, Anton
  • Pangallo, Marco
  • del Rio-Chanona, R. Maria
  • Lafond, François
  • Farmer, J. Doyne

Abstract

We analyse the economics and epidemiology of different scenarios for a phased restart of the UK economy. Our economic model is designed to address the unique features of the COVID-19 pandemic. Social distancing measures affect both supply and demand, and input-output constraints play a key role in restricting economic output. Standard models for production functions are not adequate to model the short-term effects of lockdown. A survey of industry analysts conducted by IHS Markit allows us to evaluate which inputs for each industry are absolutely necessary for production over a two month period. Our model also includes inventory dynamics and feedback between unemployment and consumption. We demonstrate that economic outcomes are very sensitive to the choice of production function, show how supply constraints cause strong network effects, and find some counter-intuitive effects, such as that reopening only a few industries can actually lower aggregate output. Occupation-specific data and contact surveys allow us to estimate how different industries affect the transmission rate of the disease. We investigate six different re-opening scenarios, presenting our best estimates for the increase in R0 and the increase in GDP. Our results suggest that there is a reasonable compromise that yields a relatively small increase in R0 and delivers a substantial boost in economic output. This corresponds to a situation in which all non-consumer facing industries reopen, schools are open only for workers who need childcare, and everyone who can work from home continues to work from home.

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  • Pichler, Anton & Pangallo, Marco & del Rio-Chanona, R. Maria & Lafond, François & Farmer, J. Doyne, 2020. "Production networks and epidemic spreading: How to restart the UK economy?," INET Oxford Working Papers 2020-12, Institute for New Economic Thinking at the Oxford Martin School, University of Oxford.
  • Handle: RePEc:amz:wpaper:2020-12
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    Cited by:

    1. Christian Diem & Andr'as Borsos & Tobias Reisch & J'anos Kert'esz & Stefan Thurner, 2021. "Quantifying firm-level economic systemic risk from nation-wide supply networks," Papers 2104.07260, arXiv.org.
    2. Pichler, Anton & Pangallo, Marco & del Rio-Chanona, R. Maria & Lafond, François & Farmer, J. Doyne, 2020. "In and out of lockdown: Propagation of supply and demand shocks in a dynamic input-output model," INET Oxford Working Papers 2021-18, Institute for New Economic Thinking at the Oxford Martin School, University of Oxford, revised Feb 2021.
    3. Dessertaine, Théo & Moran, José & Benzaquen, Michael & Bouchaud, Jean-Philippe, 2022. "Out-of-equilibrium dynamics and excess volatility in firm networks," Journal of Economic Dynamics and Control, Elsevier, vol. 138(C).
    4. Severin Reissl & Alessandro Caiani & Francesco Lamperti & Mattia Guerini & Fabio Vanni & Giorgio Fagiolo & Tommaso Ferraresi & Leonardo Ghezzi & Mauro Napoletano & Andrea Roventini, 2022. "Assessing the Economic Impact of Lockdowns in Italy: A Computational Input–Output Approach [Nonlinear Production Networks with an Application to the Covid-19 Crisis]," Industrial and Corporate Change, Oxford University Press, vol. 31(2), pages 358-409.
    5. Anton Pichler & J. Doyne Farmer, 2021. "Simultaneous supply and demand constraints in input-output networks: The case of Covid-19 in Germany, Italy, and Spain," Papers 2101.07818, arXiv.org, revised May 2021.
    6. Bazzana, Davide & Cohen, Jed J. & Golinucci, Nicolò & Hafner, Manfred & Noussan, Michel & Reichl, Johannes & Rocco, Matteo Vincenzo & Sciullo, Alessandro & Vergalli, Sergio, 2022. "A multi-disciplinary approach to estimate the medium-term impact of COVID-19 on transport and energy: A case study for Italy," Energy, Elsevier, vol. 238(PC).
    7. Heinrich, Torsten, 2021. "Epidemics in modern economies," MPRA Paper 107578, University Library of Munich, Germany.
    8. Yuli Shan & Jiamin Ou & Daoping Wang & Zhao Zeng & Shaohui Zhang & Dabo Guan & Klaus Hubacek, 2021. "Impacts of COVID-19 and fiscal stimuli on global emissions and the Paris Agreement," Nature Climate Change, Nature, vol. 11(3), pages 200-206, March.
    9. Blagica Petreski & Marjan Petreski & Bojan Srbinoski, 2020. "The potential of export-oriented companies to contribute to post-Covid-19 economic recovery in North Macedonia," Finance Think Policy Studies 2020-12/33, Finance Think - Economic Research and Policy Institute.
    10. Domenico Delli Gatti & Elisa Grugni, 2021. "Breaking Bad: Supply Chain Disruptions in a Streamlined Agent Based Model," CESifo Working Paper Series 9029, CESifo.
    11. Bogusława Drelich-Skulska & Sebastian Bobowski & Jan Gola, 2021. "Global Value Chains in the Era of the COVID-19 Pandemic: Symptoms of Deglobalization," European Research Studies Journal, European Research Studies Journal, vol. 0(Special 3), pages 905-913.
    12. Severin Reissl & Alessandro Caiani & Francesco Lamperti & Mattia Guerini & Fabio Vanni & Giorgio Fagiolo & Tommaso Ferraresi & Leonardo Ghezzi & Mauro Napoletano & Andrea Roventini, 2021. "Assessing the economic effects of lockdowns in Italy: a computational Input-Output approach," LEM Papers Series 2021/03, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    13. Souknilanh Keola & Kazunobu Hayakawa, 2021. "Do Lockdown Policies Reduce Economic and Social Activities? Evidence from NO2 Emissions," The Developing Economies, Institute of Developing Economies, vol. 59(2), pages 178-205, June.
    14. Severin Reissl & Alessandro Caiani & Francesco Lamperti & Tommaso Ferraresi & Leonardo Ghezzi, 2022. "A regional Input-Output model of the Covid-19 crisis in Italy: decomposing demand and supply factors," LEM Papers Series 2022/04, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    15. Fabio Caccioli & Tiziana Di Matteo & Giulia Iori & Saqib Jafarey & Giacomo Livan & Simone Righi, 2022. "Introduction to the special issue on the 24th annual Workshop on Economic science with Heterogeneous Interacting Agents, London, 2019 (WEHIA 2019)," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 17(2), pages 401-404, April.
    16. Kazunobu Hayakawa & Hiroshi Mukunoki, 2021. "Impacts of COVID‐19 on Global Value Chains," The Developing Economies, Institute of Developing Economies, vol. 59(2), pages 154-177, June.
    17. Orkideh Gharehgozli & Peyman Nayebvali & Amir Gharehgozli & Zaman Zamanian, 2020. "Impact of COVID-19 on the Economic Output of the US Outbreak’s Epicenter," Economics of Disasters and Climate Change, Springer, vol. 4(3), pages 561-573, October.
    18. Aleksey Ponomarenko & Svetlana Popova & Andrey Sinyakov & Natalia Turdyeva & Dmitry Chernyadyev, 2020. "Assessing the Consequences of the Pandemic for the Russian Economy Through an Input-Output Model," Russian Journal of Money and Finance, Bank of Russia, vol. 79(4), pages 3-17, December.

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    More about this item

    Keywords

    COVID-19; production networks; economic growth; epidemic spreading;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models
    • D57 - Microeconomics - - General Equilibrium and Disequilibrium - - - Input-Output Tables and Analysis
    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • I19 - Health, Education, and Welfare - - Health - - - Other
    • O49 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Other

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