How did GVC‐trade respond to previous health shocks? Evidence from SARS and MERS

Abstract

A health crisis can impact GVCs adversely by raising bilateral trade costs and via supply‐ and demand‐side shocks in the exporting and importing countries. Focusing on trade in select GVC‐intensive sectors, we disentangle the effects of these different channels in the context of SARS and MERS in a structural gravity framework. The estimated effects are found to be small in magnitude and show significant heterogeneity by sector, channel and disease outbreak. SARS‐induced rise in bilateral trade costs is found to reduce the export value and number of products traded of both intermediate and final goods, while similar adverse effects from MERS are only observed on intermediate goods export value. There is more evidence for the adverse effects of supply‐shocks from both SARS and MERS in our results, while the expected negative effects of the demand‐shock are only observed for MERS. The SARS effects are found to diminish over time, pointing to resilience of the associated value‐chains. We also find suggestive evidence for SARS in particular being associated with geographical diversification and widening of value‐chains.