International Production Networks Are Overcoming COVID-19 Shocks: Evidence from Japan's Machinery Trade

Abstract

This paper investigates the impacts of COVID-19 on international production networks in machinery sectors by shedding light on negative supply shocks, negative demand shocks, and positive demand shocks. Specifically, we examined changes in trade in the trade-fall periods amid COVID-19 in 2020 using Japan's machinery trade at the most disaggregated level and decomposed them into two intensive margins (i.e., the quantity effect and the price effect) and two extensive margins (i.e., the entry effect and the exit effect). Our empirical results show that trade relationships for parts and components were robust even amid COVID-19 and that international production networks in machinery sectors were almost intact. They also demonstrate that COVID-19 brought positive demand shocks for specific products with special demand due to its nature in addition to negative supply shocks and negative demand shocks, which partially explains heterogeneous effects not only among sectors but also among products in the same sector. As of October 2020, Japan's machinery trade seems to have mostly recovered.

COVID-19 and domestic trade in Bulgaria

“…The estimation of the model was again performed as ARCH (1), and the results are summarized in Table A2. The diagnostic check of the residuals showed that they could be treated as independent variables.…”

“…The biggest drops were recorded in May 2020, when trade in finished machinery goods fell by 30%, and trade in machinery parts was down by 20%. Ando et al (2021) studied the Japanese trade in machinery and equipment concerning COVID-19-induced shocks. They used detailed data for 2020 and found that the trade in parts and components was stable even at the pandemic's peak, and the international supply chains were unaffected.…”

“…While suffering from the pandemic and the restrictions, some supply chains remained robust (Ando et al, 2021;Chenarides et al, 2021). E-commerce and m-commerce grew (Dumanska et al, 2021), enterprises proved to be flexible in the crisis (Deconinck et al, 2020), and exports rose (Rose et al, 2021;Jomthanachai et al, 2022), all suggesting the heterogeneity in the pandemic impact on trade (Zhang et al, 2022;Ngatno & Prihatiningsih, 2021).…”

Supply Chain Decoupling: Geopolitical Debates and Economic Dynamism in East Asia

“…4 What is distinctive for the COVID-19 pandemic is that it caused three major shocks, that is, negative supply shocks, negative demand shocks, and positive demand shocks. Positive demand shocks are due to COVID-19-specific demand for certain products related to teleworking, stay-at-home activities, and preventing infection, which are often available through e-commerce (Ando et al, 2021). 5 In the case of East Asia, negative supply and demand shocks were relatively light partly because the COVID-19 spread per se was less serious compared with other regions and also governments took policy responses to the pandemic with an emphasis on IPNs.…”