The COVID-19 pandemic has disrupted economic activity in India. Adjusting policies to contain transmission while mitigating the economic impact requires an assessment of the economic situation in near real-time and at high spatial granularity. This paper shows that daily electricity consumption and monthly nighttime light intensity can proxy for economic activity in India. Energy consumption is compared with the predictions of a consumption model that explains 90 percent of the variation in normal times. Energy consumption declined strongly after a national lockdown was implemented on March 25, 2020 and remained a quarter below normal levels throughout April. It recovered subsequently, but electricity consumption remained lower even in September. Not all states and union territories have been affected equally. While electricity consumption halved in some, it declined very little in others. Part of the heterogeneity is explained by the prevalence of COVID-19 infections, the share of manufacturing, and return migration. During the national lockdown, higher COVID-19 infection rates at the district level were associated with larger declines in nighttime light intensity. Without effectively reducing the risk of a COVID-19 infection, voluntary reductions of mobility will hence prevent a return to full economic potential even when restrictions are relaxed. Together, daily electricity consumption and nighttime light intensity allow monitoring economic activity in near real-time and high spatial granularity.

The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.

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Standard horizontal foreign direct investment (FDI) models predict substitutability between FDI and exports in light of the proximity‐concentration trade‐off, nonetheless, empirical literature finds, almost invariably, a complementarity effect. We show that given the multi‐product nature of multinational enterprises both effects coexist at the firm‐level, with a substitutability for some products and a complementarity for others, explaining why the empirical substitutability relation has been so scarce even at the level of the firm. We use detailed French firm‐level data over 2002 and 2009 to show that the question of whether FDI and exports are complements or substitutes depends on whether the product belongs to the core competency of the firm and the size of demand in the destination market. We find evidence of the substitutability predicted by standard horizontal FDI models, taking place only for the best performing products of the firm and in high‐demand markets. In turn, vertical linkages and proximity advantages related to FDI's foreign presence generate exports of intermediates and products that are further away of the firms' core competency. This complementarity jeopardises the substitutability when aggregating all products of the firm, resulting on an average null net effect of FDI on exports in high‐demand countries.

This paper studies the role of reduced barriers to international trade from two dimensions: (i) the implementation of Free Trade Agreements and (ii) declining "border effects". Our empirical estimates suggest that diminished border effects accounts for the bulk of the increase in international trade in manufactured goods since 1970. The cost of a national border has fallen by around 10% per year for total exports, whereas it has declined by 13% for exports of final goods and 8% for intermediate inputs. The introduction of FTAs have an important role to play as well, raising international trade by 54% after 10 years according to our estimates. We also find evidence that more recent FTAs have a greater trade effect than those signed in earlier periods. Moreover, when estimating the effect of FTAs, we show that it is important to control for different border effects for final goods and intermediate inputs.

Quantifying the effects of trade policy in the age of 'global value chains' (GVCs) requires an enhanced analytical framework that takes the observed international input-output relations in due account. However, existing quantitative general equilibrium models generally assume that industrylevel bilateral final and intermediate trade shares are identical, and that the allocation of imported inputs across sectors is the same as the allocation of domestic inputs. This amounts to applying two proportionality assumptions, one at the border to split final goods and inputs, and another behind the border to allocate inputs across industries. In practice, neither assumption holds in available inputoutput data sets. To overcome this limitation of existing models, we consider a richer input-output structure across countries and sectors that we can match with the actual structure reported in inputoutput tables. This allows us to investigate the relation between the effects of changes in trade policies and GVCs. When we apply the enhanced quantitative general equilibrium model to the assessment of the effects of Brexit, we find trade and welfare losses that are substantially larger than those obtained by previous models. This is due to the close integration of UK-EU production networks and implies that denser GVCs amplify the adverse effects of protectionist trade policies.

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Disclaimer: This paper should not be reported as representing the views of the European Central Bank (ECB). The views expressed are those of the authors and do not necessarily reflect those of the ECB.