The economic effects of a pandemic crucially depend on the extent to which countries are connected in global production networks. In this paper we incorporate production barriers induced by COVID-19 shock into a Ricardian model with sectoral linkages, trade in intermediate goods and sectoral heterogeneity in production. We use the model to quantify the welfare effect of the disruption in production that started in China and quickly spread across the world. We find that the COVID-19 shock has a considerable impact on most economies in the world, especially when a share of the labor force is quarantined. Moreover, we show that global production linkages have a clear role in magnifying the effect of the production shock. Finally, we show that the economic effects of the COVID-19 shock are heterogeneous across sectors, regions and countries, depending on the geographic distribution of industries in each region and country and their degree of integration in the global production network.

This paper provides a quantitative analysis of the new EU-Japan Economic Partnership Agreement (EPA), the biggest bilateral deal that both the EU and Japan have concluded so far. It employs a generalized variant of the Eaton-Kortum (2002) model, featuring multiple sectors, input-output linkages, services trade, and non-tariff barriers (NTBs). It uses the results of an econometric ex post analysis of a related existing FTA, the one between the EU and Korea, to approximate the expected reductions in the costs of NTBs. This approach yields long-run welfare effects for Japan of about 18 bn USD per year (0.31% of GDP) and of about 15 bn USD (0.10%) for the EU. On average, the agreement does not appear to harm third countries. 14% of the welfare gains inside the EPA stem from tariffs, the remaining 86% from NTB reform, and the services sector account for more than half. In the EU, value added in the agri-food sector goes up most, while in Japan the manufacturing and services sectors gain.

When, about twenty years ago, the Euro was created, one objective was to facilitate intra-European trade by reducing transaction costs. Has the Euro delivered? Using sectoral trade data from 1995 to 2014 and applying structural gravity modeling, we conduct an ex post evaluation of the European Monetary Union (EMU). In aggregate data, we find a significant average trade effect for goods of almost 8 percent, but a much smaller effect for services trade. Digging deeper, we detect substantial heterogeneity between sectors, as well as between and within country-pairs. Singling out Germany, and embedding the estimation results into a quantitative general equilibrium model of world trade, we find that EMU has increased real incomes in all EMU countries, albeit at different rates. E. g. incomes have increased by 0.3, 0.6, and 2.1 percent in Italy, Germany, and Luxembourg, respectively.

Exploiting changes in the geography of economic integration in Europe, this paper quantifies the effects of Brexit from ex post to ex ante using structural gravity. By isolating the directional treatment effects of EU agreements for the UK, the analysis reveals important heterogeneity across agreements, sectors, and within pairs. We find that these directional effects matter for the size and distribution of the welfare effects of Brexit—the withdrawal of the UK from EU agreements resulting into a return of trade costs to the situation quo ante. We make this point with the help of a modern multi-sector trade model that is able to capture inter- and intranational production networks. In line with other papers, the welfare costs of Brexit are higher in the UK than in most other EU countries. However, heterogeneity tends to attenuate overall costs while giving rise to substantial heterogeneity between EU27 members and sectors. A scenario that could shift bargaining power eliminates asymmetries in the costs of Brexit as soon as the UK fully liberalizes its market.

This paper provides a quantitative analysis of the new EU-Japan Economic Partnership Agreement (EPA), the biggest bilateral deal that both the EU and Japan have concluded so far. It employs a generalized variant of the Eaton-Kortum (2002) model, featuring multiple sectors, input-output linkages, services trade, and non-tariff barriers (NTBs). It uses the results of an econometric ex post analysis of a related existing FTA, the one between the EU and Korea, to approximate the expected reductions in the costs of NTBs. This approach yields long-run welfare effects for Japan of about 18 bn USD per year (0.31% of GDP) and of about 15 bn USD (0.10%) for the EU. On average, the agreement does not appear to harm third countries. 14% of the welfare gains inside the EPA stem from tariffs, the remaining 86% from NTB reform, and the services sector account for more than half. In the EU, value added in the agri-food sector goes up most, while in Japan the manufacturing and services sectors gain.