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

Eddy Bekkers and Robert Koopman

The World Economy, 2022, vol. 45, issue 2, 445-467

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.

Date: 2022
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