Abstract
This paper studies the trade effects of COVID‐19 using monthly disaggregated trade data for 28 countries and multiple trading partners from the beginning of the pandemic to June 2020. Regression results based on a sector‐level gravity model show that the negative trade effects induced by COVID‐19 shocks varied widely across sectors. Sectors more amenable to remote work contracted less throughout the pandemic. Importantly, participation in global value chains increased traders’ vulnerability to shocks suffered by trading partners, but it also reduced their vulnerability to domestic shocks.
Highlights
The Covid-19 pandemic has generated a supply and demand shock across many countries
Instead of controlling for country-level determinants of bilateral trade, we rely on a comprehensive set of fixed effects, as our goal is to identify the role of sector characteristics in mitigating Covid-19 related shocks in the exporting, partner and third countries
Before assessing the heterogeneous impact that Covid-19-induced shocks could have across different sectors, we examine the relationship between aggregate bilateral export growth and supply shocks both at home and in third countries and demand shocks in trading partners
Summary
The Covid-19 pandemic has generated a supply and demand shock across many countries. Production, consumption and trade patterns have been affected both directly and as a result of lockdowns and social distancing measures introduced to reduce the spread of the disease. Participation in global value chains – either by importing inputs for use in export production or by exporting inputs for use by a trading partner - can mitigate or augment the negative trade effects of Covid related shocks. Instead of controlling for country-level determinants of bilateral trade, we rely on a comprehensive set of fixed effects, as our goal is to identify the role of sector characteristics in mitigating Covid-19 related shocks in the exporting, partner and third countries. A disruption of production in an exporter’s partner countries more adversely affected its export growth in sectors with high shares of imported inputs.
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