The Trade Effects of Pandemics

Joao Jalles and Georgios Karras

No 2022/0214, Working Papers REM from ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa

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.

Keywords: pandemics; current account; local projection; panel data; recessions; nonlinearities (search for similar items in EconPapers)
JEL-codes: C33 E32 F14 F40 I15 (search for similar items in EconPapers)
Date: 2022-02
New Economics Papers: this item is included in nep-cwa, nep-int and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:ise:remwps:wp02142022

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