Search

Production processes depend on fragmented and interdependent value chains; nowadays, a single product often includes components produced in dozens of countries. Many public health measures being implemented to prevent the spread of COVID-19 have dampened economic activity of ‘non-essential’ sectors. The decreased production affects other industries and countries that supply parts, machinery, and services via global value chains. Using the World Input-Output Database, we show how a hypothetical decline in the worldwide consumption of a set of non-essential sectors affects the global distribution of GDP and employment. While richer countries consume relatively more non-essential goods and services, we find, by considering the interdependencies among developed and developing economies, that low-income countries are likely to suffer steeper declines in their GDP and employment. Specifically, for each 1% decline in the demand for non-essential products, the GINI index across nations is expected to rise by 0.3%. That is, global inequality is likely to rise, contradicting some earlier findings. Finally, we show that economies with less-diverse sets of industries are more vulnerable to such global shocks. This study highlights the role of value chains in analyzing the spatial spread of the impacts and their contribution to amplifying world imbalances.

Analysis of the impact of the COVID-19 Pandemic on the state of Illinois’ economy, using an annual econometric-input-output model, revealed that even though the initial or direct impacts were concentrated in three sectors, Construction, Trade and Transportation and Hotel and Leisure Activities, the indirect effects were felt throughout the economy. The multiplier or ripple effects from the loss of jobs in the three most affected sectors penetrated throughout the state as a result of losses of purchases on inputs from other sectors (the value-chain effect) and, most critically, from the loss of wages and salaries. The negative income effect resulted in decreases in total consumption, as well as significant re-allocations of consumption to more grocery expenditures (with a concomitant decrease in, for example, restaurant purchases) and especially a pronounced decrease in the purchase of durable goods as households became more risk adverse. An estimated initial loss of 400,000 direct jobs would lead to a further indirect loss of 150,000 jobs for a total loss of 550,000 jobs. Given the significant degree of interconnectedness of sectors in the Illinois economy, recovery is likely to take time as many of the directly affected sectors are associated with expenditures made by business and tourist visitors to the state; with travel restrictions in place, as well as limitations on dining and cultural activities (many of which have been cancelled), the external economic stimuli will remain at low levels.