1.2 Effects of COVID-19 lockdown policies on global value chains

FIGURE 1.2 Effects of COVID-19 lockdown policies on global value chains

COVID-19 lockdown policies Domestic/Foreign

International logistics constraints Supply shocks

Bottlenecks at ports of entry (upstream and downstream) Reduction in port calls or increase in transportation costs

Labor force social distancing

Workers suspended or dismissed Social downgrading (women a ected more then men)

Source: World Bank staff.

Demand shocks

Changes in composition of consumption Contraction in orders or consumption

Disruptions of firms’ value chains

goods trade fell by 8.3 percent in 2020 relative to 2019. Services trade contracted by 15 percent, more rapidly than goods trade. The figures for the full year include very sharp contractions concentrated in the second quarter of 2020, followed by a rapid recovery in many countries. Multiple layers of uncertainty affected foreign direct investment perhaps even more than trade. During 2020, the value of global foreign direct investment declined by an estimated 42 percent, reaching levels not seen since 2005.

The tourism and travel sector was affected the most negatively as a result of border closures, travel restrictions, and the cancellation of many commercial flights. In February 2021, 32 percent of international borders remained closed, and almost all countries maintained some form of restrictions on travel. Commercial passenger flights, which had collapsed by 80 percent in April 2020, have recovered partly. However, much of the tourist ecosystem is based on small and medium enterprises and simply went bankrupt, making consolidation among larger players likely.

The poor in low- and middle-income countries were affected the most adversely. The incomes of small-scale cross-border traders in Africa, who earn the smallest of margins, declined as a result of border closures. Workers in these countries have far fewer opportunities for remote working and therefore fewer options to maintain their income than their counterparts in richer countries. In certain value chains such as apparel, major brands and retailers based in the European Union (EU) and the United States canceled or postponed orders, including for goods already produced by suppliers in low- and middle-income countries. This situation led to factory closures in countries such as Bangladesh, Myanmar, and Vietnam and the loss of jobs, mostly for female workers.

Like COVID-19 itself, which spread around the world in waves, trade has recovered unevenly, with countries that are well integrated in GVCs experiencing the most dramatic recoveries. This situation is most apparent in East Asia and above all in China. Most high-income economies were able to adapt as well, despite startand-stop lockdowns. But trade in the Middle East and North Africa, South Asia, and