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The Trade Effects of Pandemics

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  • João Tovar Jalles
  • Georgios Karras

Abstract

Early evidence suggests that COVID-19 caused a sharp decrease in international trade and a widening of current account imbalances. This paper shows that (qualitatively) similar responses have characterized the effects of previous pandemics. Using data from a sample of 170 countries, we find that a pandemic shock is typically followed by a sizable decrease in output and trade volumes, but an uneven current account response: balances improve in developed (or surplus) economies but deteriorate in developing (or deficit) ones. We also explore potential mechanisms for this asymmetry, and our evidence is pointing to national saving and the business cycle phase as the main reasons behind the divergent current account dynamic responses.

Suggested Citation

  • João Tovar Jalles & Georgios Karras, 2022. "The Trade Effects of Pandemics," Working Papers REM 2022/0214, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    • Handle: RePEc:ise:remwps:wp02142022
    as

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    File URL: https://rem.rc.iseg.ulisboa.pt/wps/pdf/REM_WP_0214_2022.pdf
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    pandemics; current account; local projection; panel data; recessions; nonlinearities;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • I15 - Health, Education, and Welfare - - Health - - - Health and Economic Development

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