Income Leakage Regional Effects: Supply and Demand Shocks during the Pandemic in Brazil and Chile

Adelar Fochezatto (), Eduardo Sanguinet, Patricia Batistela and Rodrigo Valdes
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Adelar Fochezatto: Escola de Negocios, Pontificia Universidade Católica do Rio Grande do Sul, Porto Alegre 90619-900, Brazil
Patricia Batistela: Escola de Negocios, Pontificia Universidade Católica do Rio Grande do Sul, Porto Alegre 90619-900, Brazil
Rodrigo Valdes: Escuela de Negocios y Economía, Pontificia Universidad Católica de Valparaíso, Valparaíso 2340000, Chile

Geographies, 2023, vol. 3, issue 4, 1-19

Abstract: During the COVID-19 pandemic, regions were affected by a combination of economic crises: weak demand and constrained supply. Several studies have sought to analyse the heterogeneous effects of supply and demand shocks on the labour market, economic growth, and the environment. This study has a different focus, estimating both direct and indirect effects of demand and supply shocks adopted during the pandemic in Brazil and Chile. Afterwards, the paper compares the degree of regional absorption (leakage) of income resulting from each of these shocks, applying an interregional input–output model for each country. The results of this study show that income absorption by the poorest regions is relatively greater in the case of a supply shock. It can be said, therefore, that this type of shock improves the retention of income generated in the poorest regions, favouring the development of these localities and the reduction in regional inequalities. The main reason for this result is that supply policies have restricted essential sectors to a lesser extent, and these sectors are generally less concentrated in large urban centres in both Brazil and Chile. In other words, much of the interregional leakage is driven by the demand for non-essential products, mainly in the richest urban economy centres. Finally, the geographical dimension of regional inequalities leads to the economic benefit of prosperous areas in the country when shocks occur in vulnerable regions, highlighting the centre–periphery pattern in both countries.

Keywords: COVID-19; emergency policies; income absorption; input–output (search for similar items in EconPapers)
JEL-codes: Q1 Q15 Q5 Q53 Q54 Q56 Q57 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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