Transient Dynamics of the COVID Lockdown on India’s Production Network

38 Pages Posted: 3 Sep 2021 Last revised: 6 Oct 2023

See all articles by Antoine Mandel

Antoine Mandel

Université Paris I Panthéon-Sorbonne; Climate Finance Alpha

Vipin P. Veetil

Indian Institute of Managment Kozhikode

Date Written: October 6, 2023

Abstract

In the wake of the COVID-19 pandemic, numerous governments imposed production
restrictions on various sectors of the economy. Prima facia there is reason to believe that
the cost of these restrictions may be greater than their simple sum. This is because quantity
constraints on production percolate through the supply chain forcing some sectors to reduce
output because of the non-availability of inputs. This paper develop an agent-based model
of a supply chain to study the impact of the COVID lockdown. The model is capable of
generating out-of-equilibrium dynamics in response to shocks like the COVID lockdowns.
The model generates two counterintuitive phenomena in response to the lockdowns. The
first of which is that the supply of output of some sectors increases during and immediately
after the lockdown. And the second is that recovery after the relaxation of the lockdown
entails the overshooting of GDP above its normal levels. Furthermore, the size of the
overshooting depends on the stickiness of prices. These counterintuitive phenomena are intimately
related to the network interaction between firms as buyers and sellers of intermediate
inputs. We calibrate the model to the Indian economy to illustrate both the increase in the
output of some sectors and the overshooting of GDP in recovery. We also use the model to
decompose the total effect of the lockdown into ‘direct effect’ and ‘network effect’, whereby
the ‘network effect’ measure that portion of the reduction in the output of a sector which is
brought about by the lockdown impose on other sectors. We use this decomposition to
empirically estimate the ‘network effect’ for each sector of the Indian economy. We find
that there is sizeable heterogeneity among sectors in how their network position amplifies
the quantity constraints imposed on sectors distantly related to them as buyers-sellers of
intermediate inputs.

Keywords: COVID Lockdown, Production Network, Supply Chain, Disequilibrium, Agent-based Model,Indian Economy

JEL Classification: J60, D50, D57

Suggested Citation

Mandel, Antoine and Veetil, Vipin P., Transient Dynamics of the COVID Lockdown on India’s Production Network (October 6, 2023). Available at SSRN: https://ssrn.com/abstract=3916355 or http://dx.doi.org/10.2139/ssrn.3916355

Antoine Mandel

Université Paris I Panthéon-Sorbonne ( email )

17, rue de la Sorbonne
Paris, IL 75005
France

Climate Finance Alpha ( email )

20 rue de Vintimille
PARIS 9E ARRONDISSEMENT, 75009

Vipin P. Veetil (Contact Author)

Indian Institute of Managment Kozhikode ( email )

Kerala
Kunnamangalam
Kozhikode, KS Kerala 673570
India

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