necessary control variables. This formulation includes higher order indirect exposures (e.g. L E U S , t k , for k = 2, … , K ) that would capture long supply-chain links.
We make three assumptions to take this model to the data.
First, we take K = 2. That is, we only go one step further than our baseline results and assume away any effect of lockdownsthree and more steps away from the importing country. Given the short-lived nature of direct lockdown effects, especially in relation to global delivery lags involved in seaborne trade, our prior was that
World trade contracted dramatically during the global economic crisis induced by the COVID-19 pandemic. Disruptions in international supply chains were widely reported as governments imposed containment measures (lockdowns) to halt the spread of the disease. At the same time, demand declined as households and firms scaled back spending. This paper attempts to disentangle the supply and demand channels in trade by quantifying the causal effect of supply spillovers from lockdowns. We utilize a novel dataset of daily bilateral seaborne trade, and design a shift-share identification strategy that leverages geography-induced cargo delivery lags to track the transmission of supply disruptions across space. We find strong but short-lived supply spillovers of lockdowns through international trade. Moreover, the evidence is suggestive of the downstream propagation of countries’ lockdowns through global supply chains.