The subnational supply chain and the COVID‐19 pandemic: Short‐term impacts on the Brazilian regional economy

Abstract

To control the transmission of the coronavirus disease (COVID-19), Brazilian local governments have adopted partial lockdown measures in economic sectors, thereby triggering transmission shocks along input-output supply chains. The national internal market and territorial disparities favor the formation of subnational production networks within borders, thus increasing the potential effects of lockdown measures on regional integration production networks. Therefore, this study makes hypothetical simulations of COVID-19 mitigation policy decisions to understand the regional impacts on integration in supply chains, considering both domestic and global value chains. The generalized hypothetical extraction method is applied to a Brazilian interregional input-output model with 68 industries and 27 regions, imputing partial removals on intermediate consumption and final demand. The results suggest that richer subnational areas, mainly São Paulo and Rio de Janeiro, are proportionally more impacted by COVID-19 trade shocks. However, the poorer peripheries are doubly affected, either by the foreign shock, which would damage their economic structure, or by the retraction of the subnational demand from core states. The findings highlight that economic shocks are spatially distributed through different industrial structures, thus stressing the need to avoid "one size fits all" regional policies to mitigate the potential negative effects on exposed regions. KEYWORDS Regional effects. Hypothetical extraction method. Domestic value chains. COVID-19 outbreak. JEL CLASSIFICATION R12. R10.

Measuring the attractiveness of regions

“…This is occurring in light of rising foreign wages, price instability in factors of production (transport, energy) and the cost savings associated with automation. For example, France's COVID recovery plan France Relance dealt out roughly 1 billion euros in support of reshoring and maintaining certain industries, notably health, essential goods, electronics, the agri-food industry and telecommunications (Région Ile de France, 2021 [25]). Likewise, the Wallonia Region of Belgium earmarked 3 million euros of its Get Up Wallonia recovery plan to support the reshoring of food systems.…”

Tertiary industries’ value-added as a linkage’s engine: An interstate input-output application for Brazilian regions

“…The forces of agglomeration act as essential drivers for the attraction of support services to both the primary and secondary sectors. In Brazil, relevant structural characteristics influence the vertical integration of services to the rest of the regional industries, mainly due to its market size (in terms of the territorial area, population, and trade patterns), favouring the creation of complex internal production networks (Sanguinet et al, 2021). Second, the Brazilian economy is relatively closed internationally and specializes in exporting raw materials (de Backer et al, 2018;Perobelli et al, 2018).…”

“…Figure 3 shows the IO model's regional setting and indicates the hierarchies of distribution on regional GDP. Evidence in the IO suggests that tables represent interregional and interindustry dependence on the economic structure, which tends to maintain stability over time (Sanguinet et al, 2021). According to the literature, the fragmentation of production has modest changes over time, thereby facilitating the assumption that the economic structure is not considerably different along the time (Timmer et al, 2016).…”

“…At the same time, Brazil is one of the economies with the lowest foreign value-added in its exports, implying opportunities for subnational networks (De Backer et al, 2018). The productive aptitude of Brazilian regions deals with a geographically demarcated structure of diversification and specialization (Haddad & Azzoni, 2017;Sanguinet et al, 2021;Silveira-neto & Azzoni, 2011), which influences the linkages between tertiary sectors and the rest of the local economic activity. In this sense, it is particularly relevant to understand the spatial patterns of chaining, as tertiary training tends to be intensely value-added, which impacts the extension of production networks and practices of regional development (Francois et al, 2015).…”

How Has the COVID-19 Pandemic Accelerated E-Commerce in Russia: Evidence from Firm-Level Data with Spatial Factors

“…Subnational disparities have always been an important issue in economic studies and industrial policy. The COVID-19 pandemic has exacerbated inequalities between and within countries and evolved to be a kind of "catalyst" for the adoption and increasing use of digital technologies at the firm level (Sanguinet et al, 2021;Amankwah-Amoah et al, 2021). These impacts are particularly relevant in large economies, such as the Russian Federation, which have heterogeneous territories and business and economic activity concentrated in a few large urban centres.…”