[Paper Review] The propagation of the economic impact through supply chains: The case of a mega-city lockdown against the spread of COVID-19

Hiroyasu Inoue, Yasuyuki Todo|arXiv (Cornell University)|Mar 31, 2020

COVID-19 epidemiological studies13 references19 citations

TL;DR

This study uses an agent-based model with real firm-level supply chain data from Japan to simulate the economic impact of a one-month lockdown in Tokyo during the COVID-19 pandemic. It finds that the indirect effect on other regions is twice the direct loss in Tokyo, resulting in a total national production loss of 27 trillion yen (5.3% of GDP), highlighting the severe propagation of economic shocks through complex supply chains.

ABSTRACT

This study quantifies the economic effect of a possible lockdown of Tokyo to prevent spread of COVID-19. The negative effect of the lockdown may propagate to other regions through supply chains because of shortage of supply and demand. Applying an agent-based model to the actual supply chains of nearly 1.6 million firms in Japan, we simulate what would happen to production activities outside Tokyo when production activities that are not essential to citizens' survival in Tokyo were shut down for a certain period. We find that when Tokyo is locked down for a month, the indirect effect on other regions would be twice as large as the direct effect on Tokyo, leading to a total production loss of 27 trillion yen in Japan, or 5.3% of its annual GDP. Although the production shut down in Tokyo accounts for 21% of the total production in Japan, the lockdown would result in a reduction of the daily production in Japan by 86% in a month.

Motivation & Objective

• To quantify the economic impact of a potential one-month lockdown in Tokyo during the COVID-19 pandemic.
• To analyze how the economic shock propagates from Tokyo to other regions through inter-firm supply chains.
• To evaluate whether prioritization of production in downstream firms can mitigate the propagation effect.
• To assess the role of supply chain network structure in amplifying economic disruptions.
• To provide policy-relevant insights on the long-term consequences of mega-city lockdowns.

Proposed method

• An agent-based model is applied to actual supply chain data from 1.6 million Japanese firms in 2016, including firm locations, industries, sales, and supplier-customer linkages.
• The model simulates production disruptions in non-essential sectors in Tokyo, assuming a one-month shutdown of these firms.
• Firm-level production is updated iteratively based on input availability, with downstream firms constrained by lack of supplies from Tokyo.
• Two scenarios are tested: baseline (no prioritization) and alternative (prioritization of downstream firms) to assess mitigation potential.
• The model uses input-output tables from 2015 to calibrate production functions and value-added calculations.
• The simulation tracks daily production losses across regions and quantifies total value-added reduction in Japan.

Experimental results

Research questions

• RQ1 What is the total economic impact of a one-month lockdown in Tokyo on Japan’s national production, including indirect effects through supply chains?
• RQ2 How does the propagation effect of a lockdown in Tokyo compare to the direct effect within Tokyo?
• RQ3 To what extent can prioritizing production in downstream firms reduce the overall economic loss during a lockdown?
• RQ4 How does the duration of a lockdown affect the cumulative economic impact across regions?
• RQ5 How do complex network features of supply chains, such as scale-free properties and loops, influence the propagation of economic shocks?

Key findings

• A one-month lockdown of non-essential production in Tokyo results in a total national production loss of 27 trillion yen, equivalent to 5.3% of Japan’s annual GDP.
• The indirect economic impact on regions outside Tokyo is twice as large as the direct impact within Tokyo, with losses outside Tokyo exceeding those in Tokyo after a month-long lockdown.
• Despite a direct production loss in Tokyo of 21.3% of national output, the daily national production drops by 86.1% during the lockdown, indicating severe systemic disruption.
• The total economic loss increases more than twofold when the lockdown duration is doubled, showing a strong cumulative effect over time.
• Prioritizing downstream firms to maintain production does not significantly reduce the propagation effect, especially for longer lockdowns.
• Even with potential underestimation due to data limitations—such as headquarters-only location reporting—the large propagation effect remains robust, suggesting the findings are conservative.