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Globalization in the Time of Covid-19

Author

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  • Alessandro Sforza
  • Marina Steininger

Abstract

The economic effects of a pandemic crucially depend on the extent to which countries are connected in global production networks. In this paper we incorporate production barriers induced by Covid-19 shock into a Ricardian model with sectoral linkages, trade in intermediate goods and sectoral heterogeneity in production. We use the model to quantify the welfare effect of the disruption in production that started in China and quickly spread across the world. We find that the Covid-19 shock has a considerable impact on most economies in the world, especially when a share of the labor force is quarantined. Moreover, we show that global production linkages have a clear role in magnifying the effect of the production shock. Finally, we show that the economic effects of the Covid-19 shock are heterogeneous across sectors, regions and countries, depending on the geographic distribution of industries in each region and country and their degree of integration in the global production network.

Suggested Citation

  • Alessandro Sforza & Marina Steininger, 2020. "Globalization in the Time of Covid-19," CESifo Working Paper Series 8184, CESifo.
  • Handle: RePEc:ces:ceswps:_8184
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    References listed on IDEAS

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    Cited by:

    1. Roberto Antonietti & Giulia De Masi & Giorgio Ricchiuti, 2020. "Linking FDI Network Topology with the Covid-19 Pandemic," Papers in Evolutionary Economic Geography (PEEG) 2054, Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography, revised Nov 2020.
    2. Felbermayr, Gabriel & Gans, Steffen & Mahlkow, Hendrik & Sandkamp, Alexander-Nikolai, 2021. "Decoupling Europe," Kiel Policy Brief 153, Kiel Institute for the World Economy (IfW).
    3. Robert J. R. Elliott & Ingmar Schumacher & Cees Withagen, 2020. "Suggestions for a Covid-19 Post-Pandemic Research Agenda in Environmental Economics," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 76(4), pages 1187-1213, August.
    4. Inferrera, Sergio, 2021. "Globalisation in Europe: Consequences for the business environment and future patterns in light of Covid-19," IWH-CompNet Discussion Papers 2/2021, Halle Institute for Economic Research (IWH).
    5. Peter Eppinger & Gabriel J. Felbermayr & Oliver Krebs & Bohdan Kukharskyy, 2020. "Covid-19 Shocking Global Value Chains," CESifo Working Paper Series 8572, CESifo.
    6. Barthélémy Bonadio & Zhen Huo & Andrei A. Levchenko & Nitya Pandalai-Nayar, 2020. "Global Supply Chains in the Pandemic," NBER Working Papers 27224, National Bureau of Economic Research, Inc.
    7. Rajneesh Narula, 2020. "Policy opportunities and challenges from the COVID-19 pandemic for economies with large informal sectors," Journal of International Business Policy, Palgrave Macmillan, vol. 3(3), pages 302-310, September.
    8. Jianping Huang & Chinlon Lin & Yang Gao & Chun-liang Chen, 2021. "A Study of Lacquerware Industry’s Upgrading and Sustainability Strategies from the Perspective of GVCs—Using China Fuzhou Lacquerware Industry as Example," Sustainability, MDPI, vol. 13(9), pages 1-23, April.
    9. Liu, Xuepeng & Ornelas, Emanuel & Shi, Huimin, 2021. "The Trade Impact of the Covid-19 Pandemic," CEPR Discussion Papers 16201, C.E.P.R. Discussion Papers.
    10. Hanming Fang & Chunmian Ge & Hanwei Huang & Hongbin Li, 2020. "Pandemics, global supply chains and local labor demand: evidence from 100 million posted jobs in China," CEP Discussion Papers dp1730, Centre for Economic Performance, LSE.
    11. Andrea Coveri & Claudio Cozza & Leopoldo Nascia & Antonello Zanfei, 2020. "Supply chain contagion and the role of industrial policy," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 47(3), pages 467-482, September.
    12. Lisandra Flach, 2021. "Recent Challenges for Global Cooperation and the Future of WTO," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 22(02), pages 08-11, March.
    13. Lisandra Flach & Marina Steininger, 2020. "Globalisierung nach Covid-19: Die Folgen der Pandemie für die deutsche Wirtschaft," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 73(07), pages 17-23, July.
    14. Peter Eppinger & Gabriel J. Felbermayr & Oliver Krebs & Bohdan Kukharskyy, 2021. "Decoupling Global Value Chains," CESifo Working Paper Series 9079, CESifo.
    15. Bonadio, Barthélémy & Huo, Zhen & Levchenko, Andrei A. & Pandalai-Nayar, Nitya, 2021. "Global supply chains in the pandemic," Journal of International Economics, Elsevier, vol. 133(C).
    16. Meinen, Philipp & Serafini, Roberta & Papagalli, Ottavia, 2021. "Regional economic impact of Covid-19: the role of sectoral structure and trade linkages," Working Paper Series 2528, European Central Bank.

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    More about this item

    Keywords

    Covid-19 shock; globalization; production barrier; sectoral interrelations; computational general equilibrium;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F60 - International Economics - - Economic Impacts of Globalization - - - General

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