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Simulating the trade effects of the COVID‐19 pandemic: Scenario analysis based on quantitative trade modelling

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  • Eddy Bekkers
  • Robert B. Koopman

Abstract

The WTO Global Trade Model, a quantitative trade model, is employed to project the impact on the global economy of the COVID‐19 pandemic. Because of the profound uncertainty about the duration of the pandemic and the containment measures, three scenarios are constructed, V‐shaped, U‐shaped and L‐shaped recovery, corresponding with a duration of the pandemic of 3 months, 6 months and more than a year. The pandemic and containment measures are assumed to lead to a general reduction of labour supply, a rise in trade costs, and reductions in both demand and supply in sectors most affected by the containment measures. GDP and trade are projected to fall by, respectively, 5% and 11% in the V‐shaped and L‐shaped scenarios and trade by, respectively, 8% and 20%. The response of trade to the reduction in GDP, measured by the trade‐to‐GDP elasticity, is projected to rise as the crisis lasts longer. The reason is that a longer duration will lead to a larger drop in spending on durables which are highly tradable.

Suggested Citation

  • Eddy Bekkers & Robert B. Koopman, 2022. "Simulating the trade effects of the COVID‐19 pandemic: Scenario analysis based on quantitative trade modelling," The World Economy, Wiley Blackwell, vol. 45(2), pages 445-467, February.
    • Handle: RePEc:bla:worlde:v:45:y:2022:i:2:p:445-467
    DOI: 10.1111/twec.13063
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    2. Gnangnon, Sèna Kimm, 2022. "Effect of structural economic vulnerability on the participation in international trade," EconStor Preprints 262004, ZBW - Leibniz Information Centre for Economics.
    3. Francesco Scotti & Andrea Flori & Giovanni Bonaccorsi & Fabio Pammolli, 2023. "Do We Learn From Errors? The Economic Impact of Differentiated Policy Restrictions in Italy," International Regional Science Review, , vol. 46(5-6), pages 613-648, September.
    4. Sena Kimm Gnangnon, 2023. "Duration of the Membership in the GATT/WTO, Structural Economic Vulnerability and Trade Costs," JRFM, MDPI, vol. 16(6), pages 1-32, May.

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