Cars in Europe: Supply Chains and Spillovers during COVID-19 Times

Cars in Europe: Supply Chains and Spillovers during COVID-19 Times
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Volume/Issue: Volume 2022 Issue 006
Publication date: January 2022
ISBN: 9798400201301
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Labor , Economics- Macroeconomics , Economics / General , Auto sector , supply chains , spillovers , Europe , auto sector , Labor supply shocks , car sale , vehicle production , Labor supply , Supply shocks , Spillovers , COVID-19 , Automobile industry , Global

Summary

The auto sector is macro-critical in many European countries and constitutes one of the main supply chains in the region. Using a multi-sector and multi-country general equilibrium model, this paper presents a quantitative assessment of the impact of global pandemic-induced labor supply shocks—both directly and via supply chains—during the initial phase of the COVID-19 pandemic on the auto sector and aggregate activity in Europe. Our results suggest that these labor supply shocks would have a significant adverse impact on the major auto producers in Europe, with one-third of the decline in the value added of the car sector attributable to spillovers via supply chains within and across borders. Within borders, the pandemic-induced labor supply shocks in the services sector have a bigger adverse impact, reflecting their larger size and associated demand effects. Across borders, spillovers from the pandemic-induced labor supply shocks that originate in other European countries are larger than those that originate outside the region, though the latter are still sizable.