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Effect of a lockdown of Tokyo against COVID-19

Estimation of the economic effect of a lockdown of Tokyo against COVID-19, including the propagation effect on other regions through supply chains. A illustrative summary of a paper available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3564898

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Effect of a lockdown of Tokyo against COVID-19

  1. 1. The propagation of the economic impact through supply chains: The case of a mega-city lockdown against the spread of COVID-19 Hiroyasu Inoue University of Hyogo Yasuyuki Todo Waseda University March 31, 2020
  2. 2. Outside Tokyo In Tokyo Summary • The economic effect of a lockdown of Tokyo propagates to other regions through supply chains, resulting in a huge production loss in Japan. • A lockdown for a month would reduce production in Tokyo by 9 trillion yen and outside Tokyo by 18 trillion yen. The total production loss would be 27 trillion yen (5% of GDP).
  3. 3. 1. Order 2. Demand 4. Production3. Inventory renewal 3 Method Based on Inoue and Todo (2019), Nature Sustainability, we apply an agent-based model of supply chains to the actual data of 1 million firms in Japan and simulate the effect of a lockdown. Created by Yuzuka Kashiwagi (Waseda University)
  4. 4. Assumptions in the simulation • All non-essential production activities in the center of Tokyo are shut down. – Essential activities: wholesale, retail, utility, transport, healthcare, communication lock- down • The effect of a lockdown propagates to other regions through supply chains. – No supply of parts from Tokyo affect downstream sectors outside Tokyo – No demand of Tokyo for parts affect upstream sectors outside Tokyo Propagation
  5. 5. Main Results Duration of lockdown Production loss in Tokyo Production loss outside Tokyo Total loss % of GDP (trillion yen) 1 day 0.309 252 561 0.11 1 week 2.2 1.6 3.7 0.72 2 weeks 4.3 5.0 9.3 1.76 1 month 9.3 18.5 27.8 5.25 2 months 18.6 50.0 68.2 12.9 Highlights • Huge effect • When the lockdown in long, the loss outside Tokyo is larger than the loss in Tokyo. • Doubling the lockdown duration more than doubles the loss.
  6. 6. Main Results Day 1 Day 14 ●Company that reduces production by more than 80% Highlight • The effect spreads across Japan day by day.
  7. 7. Main Results After a month, daily production in Japan would be 1/7 of that before COVID-19.
  8. 8. Policy Implications • A lockdown of a mega city would affect other regions, leading to a substantial economic loss. Therefore, it is suggested to employ all possible measures to avoid any lockdown. – Public support to invest in social-distancing environments in workplaces (online working, reorganization of production lines, …) – Compensation to shut down sectors in which social distancing is difficult (restaurants, pubs, concert halls, …) • If a lockdown is unavoidable, it should be as short as possible. (Doubling the lockdown duration more than doubles the loss.)
  9. 9. Inoue, Hiroyasu and Todo, Yasuyuki (2020), The propagation of the economic impact through supply chains: The case of a mega-city lockdown against the spread of COVID-19. SSRN. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3564898 Hiroyasu Inoue • Associate professor, Graduate School of Simulation Studies, University of Hyogo • Ph.D. in informatics (Kyoto University) • inoue@sim.u-hyogo.ac.jp Yasuyuki Todo • Professor, Graduate School of Economics, Waseda University • Ph.D. in economics (Stanford University) • yastodo@waseda.jp Introduction of the paper and authors

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