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The viral effects of foreign trade and supply networks in the euro area

Virginia Di Nino () and Bruno Veltri

Economic Bulletin Articles, 2020, vol. 6

Abstract: Adverse shocks induced by containment measures in response to the coronavirus (COVID-19) are not limited to the originating country. Foreign trade, while not the sole propagation mechanism, transmits these shocks across economies. In the euro area, the deep integration of firms within regional supply chains ‑ as well as strong final demand linkages ‑ acts as a magnifying mechanism. This article quantifies the propagation and impact of adverse shocks originating in the euro area on euro area GDP, foreign trade and trade balances. It concludes that the transmission to the rest of the euro area of a shock originating in one of the five largest Member States ranges from 15% to 28% of the original shock’s size. The negative spillover effects are most severe for open countries and those most intertwined in regional production network. JEL Classification: F00, F15, F62

Keywords: COVID-19; foreign trade; shock transmission; world input-output table (search for similar items in EconPapers)
Date: 2020-09
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