Abstract
Using difference-in-difference analysis in a gravity model, we examine the response of GVC-trade to two previous health shocks, SARS and MERS. Our baseline estimates suggest a decline in GVC-trade, both gross and value-added, from SARS, emanating from supply and demand shocks, though a similar effect is not observed for MERS. There is some evidence for “reshoring” and “near-shoring” in the stylized facts on SARS while empirical analysis also suggests geographical diversification of value chains due to MERS and their non-resilience to SARS in particular. The findings are observed at both the intensive (value) and extensive (number of products) margins and for both intermediate and final goods. The SARS effects are driven by non-OECD countries that were also more integrated and downstream in GVCs, and by products that were less capital- and technology-intensive. We expect similar disruptions to GVC-trade from COVID-19.
Highlights
Using difference-in-difference analysis, we examine how trade in global value chains (GVCs)-based products may have responded to two previous health shocks - SARS and MERS
These results suggest that SARS had an adverse effect on cumulative imports of GVC-based products from the worst-affected countries though a similar finding was not observed for the MERS outbreak
Using difference-in-difference analysis and disaggregated data on trade in GVC-based intermediate and final products over 2000-2018, we examine how trade in these products may have responded to two previous health shocks - SARS and MERS
Summary
Using difference-in-difference analysis, we examine how trade in GVC-based products may have responded to two previous health shocks - SARS and MERS. COVID-19 is an unprecedented crisis with disastrous health and socio-economic concerns around the world It has already affected over thirty-seven million lives since its outbreak in Wuhan, China in January 2020. Previous research suggests that overall output was disrupted more by health crises than by natural disasters (for instance see Raddatz, 2009) Recent work provides both historical evidence (Ceylan et al 2020) and empirical analysis (Fernandes and Tang, 2020) but does not focus on GVCs. Recent work provides both historical evidence (Ceylan et al 2020) and empirical analysis (Fernandes and Tang, 2020) but does not focus on GVCs This is a major gap in research given that trade in intermediate goods and services accounts for over 60 percent of total international trade (Strange, 2020). The same MNE acted as both exporter and importer in close to 40 percent of world trade, highlighting the close links between FDI and GVC-trade
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