Double-hit scenario of Covid-19 and global value chains
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Double‑hit scenario of Covid‑19 and global value chains Muhammad Zeshan1,2 Received: 9 July 2020 / Accepted: 10 September 2020 © Springer Nature B.V. 2020
Abstract Due to the Covid-19 pandemic, labor force is greatly confined by quarantine (social distancing), and limited units of labor and capital are available at the workplace. Millions of employees have lost their jobs and are facing financial hardships. Likewise, capital owners have become illiquid and possibly insolvent within months. This cycle seems to continue for other factors of production as well. Even after lifting quarantines, the global trade might take months (years) to return to its actual potential. Using the GTAP-VA model, the present study simulates the impact of the double-hit scenario of Covid-19 on the global value chains and identifies production losses in different sectors of the world economy. Keywords Covid-19 · Economy · Global value chains
1 Introduction Global trade is rapidly transforming in the coronavirus era. OECD (2020) states that the economic cost of the ongoing pandemic can range between 2.47% (China) to 14.36% (Spain) in terms of gross domestic product (GDP) in the second phase of this pandemic. It will have a devastating impact on the world trade, and there is a need of more robust global supply chains, with more stable bilateral and multilateral trade systems. On the other hand, many global leaders are questioning the role of increasing economic ties beyond the national borders. Amid growing uncertainty, there is a need to find collective solutions to recover from this ongoing crisis and rebuild a better post-Covid world, which, however, depends on many aspects. For instance, rebuilding such a post-Covid world requires a deeper understanding of trade flows. In the absence of this knowledge, national governments will find it much difficult to reform a more resilient post-pandemic trade era. The Covid-19 virus grows at the exponential rate, and the rising uncertainty leads to the loss of investment and escalates fluctuations in international trade (Ozili and Arun 2020). Service-oriented economies, particularly dependent on tourism industry, are more affected such as Greece, Spain and Portugal, where the economic losses are even * Muhammad Zeshan [email protected] 1
Norwegian University of Science and Technology (NTNU), Trondheim, Norway
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Pakistan Institute of Development Economics (PIDE), Islamabad, Pakistan
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M. Zeshan
higher than 15% of GDP (Fernandes 2020). The present crisis is creating a spillover effect throughout supply chains, and countries dependent on global trade face severe economic turbulences. Over 50% of the global trade occurs in intermediate products, and most of the countries use the foreign goods as inputs to boost their exports (Zeshan 2019). The fragmented production via intermediate products passes through numerous borders, sometimes more than once. Hence, the global economy is steadily shaping in global value chains (GVCs). However, the traditional trade data are lim
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