RIETI Report October 29 2021

The impact of COVID-19 on global production

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In this edition, we address issues related to impacts of the COVID-19 pandemic on multinational production and supply chains.
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Editors of RIETI Report (Facebook: @en.RIETI / Twitter: @RIETIenglish / URL: https://www.rieti.go.jp/en/)

This month's featured article

The impact of COVID-19 on global production

ZHANG HongyongSenior Fellow, RIETI

The COVID-19 pandemic has had substantial impacts on the world economy. In 2020, world real GDP fell by 3.6%, the volume of world merchandise trade declined by 5.3%, and foreign direct investment (FDI) flows dropped by 42% (Note 1). Supply chains have been disrupted and both supply and demand shocks transmitted through supply chains and propagated across borders. As Baldwin and Tomiura (2020) point out, COVID-19 is as contagious economically as it is medically. To slow down the spread of the coronavirus, many countries imposed some form of restrictions on people and businesses. Previous studies have shown that the COIVD-19 had large negative impacts on global supply chains (Baldwin and Freeman 2020, Bonadio et al. 2020), international trade (Hayakawa and Mukunoki 2021), and the subjective uncertainty of global firms (Chen et al. 2021).

Since Japanese multinational corporations (MNCs) are important drivers and players in FDI and global value chains (GVCs), their overseas production and supply chains were hit hard by the COVID-19 pandemic. In a recent paper (Zhang 2021), I assess the impact of COVID-19 on global production by analysing quarterly data on the foreign manufacturing affiliates of Japanese MNCs.

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