The subnational supply chain and the COVID-19 pandemic: Short-term impacts on the Brazilian regional economy.

Abstract

To control the transmission of coronavirus disease 2019 (COVID‐19), Brazilian local governments have adopted partial lockdown measures in economic sectors, thereby triggering transmission shocks along input–output supply chains. The national internal market and territorial disparities favor the formation of subnational production networks within borders, thus increasing the potential effects of lockdown measures on regional integration production networks. Therefore, this study makes hypothetical simulations of COVID‐19 mitigation policy decisions to understand the regional impacts on integration in supply chains, considering both domestic and global value chains. The generalized hypothetical extraction method is applied to a Brazilian interregional input–output model with 68 industries and 27 regions, imputing partial removals on intermediate consumption and final demand. The results suggest that richer subnational areas, mainly São Paulo and Rio de Janeiro, are proportionally more impacted by COVID‐19 trade shocks. However, the poorer peripheries are doubly affected, either by the foreign shock, which would damage their economic structure, or by the retraction of the subnational demand from core states. The findings highlight that economic shocks are spatially distributed through different industrial structures, thus stressing the need to avoid ‘one size fits all’ regional policies to mitigate the potential negative effects on exposed regions.