The Propagation of Economic Impacts through Supply Chains: The Case of a Mega-city Lockdown to Prevent the Spread of COVID-19

         
Author Name INOUE Hiroyasu (University of Hyogo) / TODO Yasuyuki (Waseda University)
Creation Date/NO. April 2020 20-E-037
Research Project Dynamics of Economy and Finance from the Economic Network Point of View
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Abstract

This study quantifies the economic effect of a possible lockdown of Tokyo to prevent the spread of COVID-19. The negative effect of such a lockdown may propagate to other regions through supply chains because of supply and demand shortages. Applying an agent-based model to the actual supply chains of nearly 1.6 million firms in Japan, we simulate what would happen to production activities outside Tokyo when production activities that are not essential to citizens' survival in Tokyo are shut down for a certain period. We find that when Tokyo is locked down for a month, the indirect effect on other regions would be twice as large as the direct effect on Tokyo, leading to a total production loss of 27 trillion yen in Japan, or 5.3% of its annual GDP. Although the production that would be shut down in Tokyo accounts for 21% of the total production in Japan, after a month, the lockdown would result in an 86% reduction in production of Japan.