PRESS RELEASE - MARCH 18, 2020
Propagation of Shocks in Global Value Chains:
The Coronavirus Case
The Covid-19 pandemic is currently affecting the entire world, with significant economic impact. A group of economics researchers from Institut Polytechnique de Paris (affiliated with École Polytechnique and ENSAE Paris) and Institut des Politiques Publiques (IPP - CREST [1] and Paris School of Economics) study the propagation of geographically concentrated productivity slowdown to the global economy through global value chains. Their note, published today, aims to quantify the total exposure of France compared to other countries.
Before spreading globally, the Covid-19 epidemic was concentrated in the Hubei province. To contain the spread of the virus, the Chinese government has imposed quarantine measures and travel restrictions, entailing a significant slowdown of economic activity. A group of economics researchers from CREST (Institut Polytechnique de Paris and Institut Politiques Publiques) study the propagation of this geographically concentrated productivity slowdown to the global economy, through global value chains.
Reliance on Chinese inputs has dramatically increased since the early 2000s. As a consequence, most countries are exposed to the Chinese productivity slowdown, both directly through their imports of Chinese inputs and indirectly, through other inputs themselves produced with some Chinese value added. Their note, published on the IPP website today, aims to quantify the total exposure of France compared to other countries. They first compute the share of Chinese value added in French production. Then, they quantify the impact of travel restrictions on the French GDP, using multi-country sectoral data on trade in intermediate goods.
Overall, their study draws the following conclusions:
- Production processes are increasingly spread across borders. Production within "Global Value Chains" allows firms to save on costs but renders value chains vulnerable to local supply shocks.
- The recent outbreak of CV-19 is a dramatic example that is used to measure the impact of a local production drop on the global economy through trade links.
- In France, 3.2% of firms' output pays Chinese inputs, on average. In some sectors like textile or electrical equipment, the proportion is above 10%.
- A 10% drop in Chinese productivity could reduce French GDP by 0.3% through trade links only.
- The shock is transmitted to the French economy through few large firms which produce out of foreign inputs.
- Optimal policy responses to supply chain disruptions include providing liquidity to distressed firms in the short-run.
- More data on value chains at firm-level is needed to identify weaknesses in the French productive structure and better target subsidies in case of a future shock.
To read the full Note IPP #53 (March 2020):
https://www.ipp.eu/en/publication/march-2020-propagation-shocks-global-value-chains-coronavirus-covid19/
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About Institut Polytechnique de Paris
The Institut Polytechnique de Paris (IP Paris) is a public higher education and research institution that brings together five prestigious French engineering schools: École Polytechnique, ENSTA Paris, ENSAE Paris, Télécom Paris and Télécom SudParis. Under the auspices of the Institute, they share their bicentennial combined expertise to fulfil two major ambitions: to develop educational programs of excellence and cutting-edge research in science and technology. Thanks to the academic anchorage of its five founding schools and its alliance with HEC Paris, IP Paris positions itself as a leading academic and research institution in France and internationally.
About Institut des Politiques Publiques
The Institut des politiques publiques (IPP) has been created by PSE and is developed through a scientific partnership between the Paris School of Economics (PSE) and the Groupe des écoles nationales d'économie et de statistique (GENES). The aim of the IPP is to promote quantitative analysis and evaluation of public policy using cutting edge research methods in economics. www.ipp.eu.
Media Contact: S. Riffé Stern ([email protected])