Cling together, swing together: the contagious effects of COVID‐19 on developing countries through global value chains

in: The World Economy 45 (2), 539-560

DOI: https://doi.org/10.1111/twec.13094
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This paper aims at estimating the economic vulnerability of developing countries to disruptions in global value chains (GVCs) due to the COVID‐19 pandemic. It uses trade in value added data for a sample of 12 developing countries in sub‐Saharan Africa, Asia and Latin America to assess their dependence on demand and supply from the three main hubs China, Europe, and North America. Using first estimates on COVID‐19‐induced changes in final demand and production, we obtain an early projection of the GDP effect during the lockdowns that runs through trade in GVCs. Our estimates reveal that adverse demand‐side effects reduce GDP up to 5.4 percent, and that collapsing foreign supply puts an even larger share of countries’ GDP at risk. Overall, we confirm conjecture that the countries most affected are those highly integrated in GVCs (South‐East Asian countries). We argue, however, that these countries also benefit from a well‐diversified portfolio of foreign suppliers and demand destinations, possibly leading to a cushioning of economic downswing because COVID‐19 stroke major hubs at different times.

About the authors

Brandi, Clara

Economy and Political Science

Stender, Frederik

Economist

Schwab, Jakob

Economy

Further experts

Berger, Axel

Political Science 

Gitt, Florian

Economics 

Olekseyuk, Zoryana

Economy 

Vogel, Tim

Economy