| Press Release

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/


 
[1] Centre for Research in Economics and Statistics (CREST – École Polytechnique/ENSAE Paris/CNRS/GENES)

About École Polytechnique

École Polytechnique, also known as L’X, is the leading French institution combining top-level research, academics, and innovation at the cutting-edge of science and technology. Its various undergraduate and graduate-level programs – Bachelor of Science, Ingénieur Polytechnicien (Master’s level program), Master’s, and PhD – are highly selective and promote a culture of excellence with a strong emphasis on science, anchored in humanist traditions. As a widely internationalized university, École Polytechnique offers a variety of international programs and attracts a growing number of foreign students and researchers from around the globe (currently 41% of students and 40% of faculty members).

École Polytechnique offers an exceptional education to prepare bright men and women to excel in top-level key positions and lead complex and innovative projects which meet the challenges of 21st century society, all while maintaining a keen sense of their civil and social responsibilities. With its 23 laboratories, 22 of which are joint research units with the French National Center for Scientific Research (CNRS), the École Polytechnique Research Center explores the frontiers of interdisciplinary knowledge to provide major contributions to science, technology, and society. École Polytechnique is a founding member of Institut Polytechnique de Paris.

Files to download

200318PRIPPARISIPPCOVID19-pdf

200318PRIPPARISIPPCOVID19-pdf

Press release