COVID-19 and Productivity: Unwinding Global Value Chains November 2020

Talia Melsom


Reviewed by Dr Adam Triggs, Professor Warwick McKibbin AO and Professor Renee McKibbin

De-globalisation, increasing protectionism and COVID-19 have led to an unprecedented productivity crisis around the world. As global value chains (GVCs) breakdown, economic growth and living standards are increasingly at risk. This paper presents a unique analysis of the implications of a sudden contraction in total factor productivity (TFP) growth for the global economy. A computable general equilibrium model is used to compare and analyse this contraction, across both permanent and temporary scenarios. The paper also investigates the differences between a contraction of TFP globally and separately in emerging markets, to analyse the asymmetric effects of trade and COVID-19. Simulations of the model show a significant decline in economic growth, labour markets, and trade and capital flows. Results highlight the necessity to enhance the resilience of GVCs, and present new insights into the importance of productivity for policymakers globally in the post-COVID-19 era.