Pandemic (COVID‐19) Policy, Regional Cooperation and the Emerging Global Production Network†

• Author: Shandre Mugan Thangavelu,Dionisius Narjoko,Fukunari Kimura,Christopher Findlay
• Published date: 01 March 2020
• DOI: http://doi.org/10.1111/asej.12198
• Date: 01 March 2020

Pandemic (COVID-19) Policy, Regional

Cooperation and the Emerging Global

Production Network

†

Fukunari Kimura, Shandre Mugan Thangavelu,

Dionisius Narjoko and Christopher Findlay

In this paper, we explore the possible policy responses to the COVID-19 pan-

demic shock as well as the related economic (financial crisis) shocks on trade and

global value chains (GVC) in East Asia. We find that regional policy coordination

is critical to mitigate and isolate the pandemic shock. It is important to identify

the pandemic events early to flatten the pandemic curve at the national and

regional level. This supports a recent study by the World Bank (2020), which

highlights the importance of early mitigation policies during the pandemic shock.

The cost of the pandemic and economic shocks will increase significantly when

several countries in the region experience the pandemic shock concurrently.In this

case, flattening the regional pandemic curve becomes important. The results also

indicate the need for greater coordination in East Asia to mitigate the pending

economic shock in terms of unemployment, corporate bankruptcy and financial

market fragility. The paper also highlights that the stability of the GVC network is

critical during the pandemic in terms of hedging the risk of disruptions to the pro-

curement of critical medical and health products as well as maintaining service

linkages to manufacturing, such as the logistics sector. Regional policy coordina-

tion and the stability of GVC will be valuable in the post-pandemic recovery of

the region.

Keywords: COVID-19, regional cooperation, global value chains.

doi: 10.1111/asej.12198

I. Introduction

The World Health Organization (WHO) declared the coronavirus disease

(COVID-19) a pandemic in March 2020. Few countries in the world have

escaped the disease: by 10 April, 1.6 million cases had been confirmed

*Kimura: Faculty of Economics, Keio University and Economic Research Institute for ASEAN

and East Asia, Tokyo, Japan. Thangavelu: Jeffrey Cheah Institute of Southeast Asia, Sunway Univer-

sity and Institute for International Trade, University of Adelaide, Adelaide, South Australia. Narjoko

(corresponding author): Economic Research Institute for ASEAN and East Asia, Jakarta, Indonesia.

Email: dion.narjoko@eria.org. Findlay: Crawford School of Public Policy, Australian National Uni-

versity, Canberra, Australian Capital Territory,Australia.

†

We would like to thank two anonymous referees for their very constructive and helpful com-

ments that improved an earlier draft.

We also want to thank Dr Osawke from UNCTAD for constructive comments.

© 2020 East Asian Economic Association and John Wiley & Sons Australia, Ltd

Asian Economic Journal 2020, Vol.34 No. 1, 3–27 3

worldwide and 96 000 people had died. In comparison, during the spread of the

severe acute respiratory syndrome (SARS), another coronavirus, only 8098 peo-

ple were infected worldwide and 774 died over 2002–2004. SARS was less

infectious but had a higher death rate and individuals infected with SARS were

more contagious once they started showing symptoms. COVID-19 is relatively

contagious than normal seasonal flu, which can be asymptomatic and has a

higher death rate.

The public health response to COVID-19, including lockdowns, has sent

shocks running up and down the supply side of production processes as well as

the demand side. Shocks with worldwide significance are not uncommon. How-

ever, there are some key differences in the COVID-19 shock compared with

others recently experienced. These differences both add to the significance of

COVID-19 and shape the potential for the recovery.

For example, as oppose to policy shocks that affect the supply side of the

economy, such as the US-China trade war, COVID-19 has led to tremendous

disruptions on both the demand and supply sides of the global value chain

(GVC). Global shocks are also associated with natural disasters, which lead to

physical damage to industrial production. In contrast, in the current situation,

global capacity remains in place, just out of use, creating scope for a more rapid

recovery than that of a natural disaster.

Research has found that the response to natural disasters can be relatively fast

if production networks are flexible and adapt. For example, Ando and

Kimura (2012) studied the impact of the 2011 Great East Japan Earthquake, pri-

marily a supply-side shock, on Japanese domestic and international production

networks in the machinery industries. They compared it to the impact of the

global financial crisis, which was primarily a demand-side shock. The compari-

son was challenging because of the scale and prolonged impact of the global

financial crisis. Their study indicated that the speed of the response of Japanese

industries to both shocks was related to the stability and robustness of produc-

tion networks and their links with East Asia. Abe and Thangavelu (2012) also

observed the significant physical damage to production and industrial activities

from natural disasters such as the Great East Japan Earthquake. Based on the

coordinated efforts of private businesses in the supply chain, the supply chain

recovery was faster than expected in that case. A study by Noy and

Shields (2019) on the economic impact of SARS found that the impact on

China, Hong Kong, Singapore and Taiwan was very short-lived and that the

economies recovered within two to three quarters. This was attributed to the

stronger containment policies of the countries but also to the flexibility of

the GVC.

The expected effects of the COVID-19 pandemic are exceptionally large. A

recent World Bank study projected that global GDP would fall by more than

2 percent in 2020 (World Bank, 2020). In comparison, in the year after the

global financial crisis, world GDP growth declined from 5.6 percent in 2007 to

zero in 2009. Similarly, in the Asian financial crisis, annual GDP growth rates

ASIAN ECONOMIC JOURNAL 4