RIETI Report April 2021

Supply chains and the economic effects of lockdowns

The effects of lockdowns have been a major topic in the economics literature in the last year, as every country and region in the world comes to grips with the COVID-19 pandemic in its own way. The variations between the responses of different countries despite the interlinkages that exist between them in the form of transnational corporations and supply chains makes this a fascinating topic for study. In this column, Inoue, Murase and Todo use two simulations to examine both the effects of different regions lifting their lockdowns at different times relative to each other, and the correlations between the supply chain characteristics of different regions and how this characteristic affects the economic recovery of the respective regions. Policy implications are also discussed.

This month's featured article

Supply chains and the economic effects of lockdowns

INOUE HiroyasuAssociate Professor, Graduate School of Simulation Studies, University of Hyogo

MURASE YohsukeResearch Scientist, RIKEN Advanced Institute of Computational Science

TODO YasuyukiFaculty Fellow, RIETI

The economic benefit from lifting lockdowns may depend significantly on the lockdown strategies of other regions and countries due to supply chain links. This column analyses the importance of supply chain links in this context by conducting a simulation analysis applying rich firm-level data from Japan to an agent-based model of production. It finds that the production of two regions can attain greater recovery by lifting their lockdowns together when they are closely linked through supply chains in either direction. These results point to the need for policy coordination among regions when regional governments impose or lift lockdowns.

COVID-19, the novel coronavirus (SARS-CoV-2) disease, has been spreading worldwide. To prevent its spread, many cities, regions, and countries were or have been ‘locked down’, shutting down or stifling economic and social activities. On 18 April 2020, in 158 out of a total of 181 countries, business in some sectors in some or all cities were required to close temporarily or implement working from home. Although some countries later lifted their lockdowns, as of 8 February 2021, 106 of the 158 countries have maintained or reimposed lockdowns that had negative effects on companies because of multiple waves of the pandemic (Hale et al. 2020).

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