International Trade of Essential Goods During a Pandemic
Abstract: This paper studies the role of international trade of essential goods during a pandemic. We consider a multi-country multi-sector model with essential and non-essential goods. Essential goods provide utility relative to a reference consumption level, and a pandemic consists of an increase in this reference level. Each country produces domestic varieties of both types of goods using capital and labor subject to sectoral adjustment costs, and all varieties are traded internationally subject to trade barriers. We study the role of international trade of essential goods in mitigating or amplifying the impact of a pandemic. We find that the effects depend crucially on the countries' trade imbalances in essential goods. Net exporters can experience welfare gains during a pandemic, while net importers can be significantly hurt. The welfare losses of net importers are lower in a world with high trade barriers, while the reverse is the case for net exporters. Yet, once the pandemic arrives, net exporters of essential goods benefit from an increase in trade barriers, while net importers benefit from a decrease in them. These findings are consistent with preliminary evidence on changes in trade barriers across countries during the COVID-19 pandemic.
File format is application/pdf
Description: Full Text
Provider: Federal Reserve Bank of St. Louis
Part of Series: Working Papers
Publication Date: 2020-05-05
Pages: 40 pages
Note: Download the latest version of the paper from http://github.com/LeiboviciSantacreu/.
- Working Paper Revision: International Trade of Essential Goods During a Pandemic