An analysis framework for supply shock effects on production and employment

Author Name SANO Tomoki (Consulting Fellow, RIETI) / NAGAMACHI Yuhei (Consulting Fellow, RIETI)
Creation Date/NO. April 2022 22-P-008
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This study proposes an input-output analysis framework to quantify supply shock effects on production and employment. Recently we observe many cases where supply shocks in certain industries impact the entire economy, such as the supply bottlenecks caused by COVID-19. To take effective measures under policy resource constraints, it is crucial to understand the quantitative effects of supply shocks on each industry and the whole economy. To this end, we propose a framework and analyze the influence on GDP and employment of 2 scenarios: a reduction of the domestic production base by 10 %, and suspension of imports from certain countries. Such a methodology would allow us to quantify supply shock impacts, reflecting relevant characteristics of industries such as the degree of dependence on imports and interdependence with other industries.