Production Networks and Epidemic Spreading: How to Restart the UK Economy?

73 Pages Posted: 27 May 2020

See all articles by Anton Pichler

Anton Pichler

University of Oxford - Institute for New Economic Thinking at the Oxford Martin School

Marco Pangallo

Scuola Superiore Sant'Anna di Pisa

R. Maria del Rio-Chanona

University of Oxford - Institute for New Economic Thinking at the Oxford Martin School

François Lafond

University of Oxford - Institute for New Economic Thinking at the Oxford Martin School

J. Doyne Farmer

University of Oxford - Institute for New Economic Thinking at the Oxford Martin School

Date Written: May 21, 2020

Abstract

We analyse the economics and epidemiology of different scenarios for a phased restart of the UK economy. Our economic model is designed to address the unique features of the COVID-19 pandemic.Social distancing measures affect both supply and demand, and input-output constraints play a key role in restricting economic output. Standard models for production functions are not adequate to model the short-term effects of lockdown. A survey of industry analysts conducted by IHS Markit allows us to evaluate which inputs for each industry are absolutely necessary for production over a two month period.Our model also includes inventory dynamics and feedback between unemployment and consumption. We demonstrate that economic outcomes are very sensitive to the choice of production function, show how supply constraints cause strong network effects, and find some counter-intuitive effects, such as that reopening only a few industries can actually lower aggregate output. Occupation-specific data and contact surveys allow us to estimate how different industries affect the transmission rate of the disease. We investigate six different re-opening scenarios, presenting our best estimates for the increase in R0 and the increase in GDP. Our results suggest that there is a reasonable compromise that yields a relatively small increase in R0 and delivers a substantial boost in economic output. This corresponds to a situation in which all non-consumer facing industries reopen, schools are open only for workers who need childcare, and everyone who can work from home continues to work from home.


Keywords: COVID-19, production networks, economic growth, epidemic spreading

JEL Classification: C61, C67, D57, E00, E23, I19, O49

Suggested Citation

Pichler, Anton and Pangallo, Marco and del Rio-Chanona, R. Maria and Lafond, François and Farmer, J. Doyne, Production Networks and Epidemic Spreading: How to Restart the UK Economy? (May 21, 2020). Available at SSRN: https://ssrn.com/abstract=3606984 or http://dx.doi.org/10.2139/ssrn.3606984

Anton Pichler (Contact Author)

University of Oxford - Institute for New Economic Thinking at the Oxford Martin School ( email )

Eagle House
Walton Well Road
Oxford, OX2 6ED
United Kingdom

Marco Pangallo

Scuola Superiore Sant'Anna di Pisa

Biblioteca Scuola Superiore Sant'Anna
Piazza Martiri della Liberta, n. 33
Pisa, 56127
Italy

R. Maria Del Rio-Chanona

University of Oxford - Institute for New Economic Thinking at the Oxford Martin School

Eagle House
Walton Well Road
Oxford, OX2 6ED
United Kingdom

François Lafond

University of Oxford - Institute for New Economic Thinking at the Oxford Martin School

Eagle House
Walton Well Road
Oxford, OX2 6ED
United Kingdom

J. Doyne Farmer

University of Oxford - Institute for New Economic Thinking at the Oxford Martin School

Eagle House
Walton Well Road
Oxford, OX2 6ED
United Kingdom

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