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WORKING PAPER: International Trade of Essential Goods During a Pandemic


by Fernando Leibovici and Ana Maria Santacreu
Posted online May 5, 2020

Abstract: This paper studies the role of international trade of essential goods during a pandemic. We consider a multi-country, multi-sector model with essential and non-essential goods. Essential goods provide utility relative to a reference consumption level, and a pandemic consists of an increase in this reference level. Each country produces domestic varieties of both types of goods using capital and labor subject to sectoral adjustment costs, and all varieties are traded internationally subject to trade barriers. We study the role of international trade of essential goods in mitigating or amplifying the impact of a pandemic. We find that the effects depend crucially on the countries’ trade imbalances in essential goods. Net exporters of these goods are relatively worse off during a pandemic than net exporters. The welfare losses of net importers are lower in a world with high trade barriers, while the reverse is the case for net exporters. Yet, once the pandemic arrives, net exporters of essential goods benefit from an increase in trade barriers, while net importers benefit from a decrease in them. These findings are consistent with preliminary evidence on changes in trade barriers across countries during the COVID-19 pandemic.

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Federal Reserve Bank of St. Louis working papers are preliminary materials circulated to stimulate discussion and critical comment.

  

© 2020, Federal Reserve Bank of St. Louis. These views do not reflect the opinion of the Federal Reserve Bank of St. Louis or the Federal Reserve System. 


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