How Did GVC-Trade Respond to Previous Health Shocks? Implications for COVID-19

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.

Keywords: GVC-trade, health shocks, COVID-19, reshoring, near-shoring, GVC-disruptions

JEL Classification: F1