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© 2022 International Monetary Fund
WP/22/6
IMF Working Paper
European Department
Cars in Europe: Supply Chains and Spillovers during COVID-19 Times
Prepared by Vizhdan Boranova, Raju Huidrom, Ezgi Ozturk, Ara Stepanyan, Petia Topalova, and Shihangyin (Frank) Zhang1
Authorized for distribution by Jaewoo Lee
January 2022
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
ABSTRACT: The auto sector is macro-critical in m any European countries and constitutes one of the main supply chains in the region. Using a multi-sector and multi-country general equilibrium model, this paper presents a quantitative assessment of the impact of global pandemic-induced labor supply shocks—both directly and via supply chains—during the initial phase of the COVID-19 pandemic on the auto sector and aggregate activity in Europe. Our results suggest that these labor supply shocks would have a significant adverse impact on the major auto producers in Europe, with one-third of the decline in the value added of the car sector attributable to spillovers via supply chains within and across borders. Within borders, the pandemic-induced labor supply shocks in the services sector have a bigger adverse impact, reflecting their larger size and associated demand effects. Across borders, spillovers from the pandemic-induced labor supply shocks that originate in other European countries are larger than those that originate outside the region, though the latter are still sizable.
| JEL Classification Numbers: | F42, F44 |
| Keywords: | Auto sector, supply chains, spillovers, Europe |
| Author’s E-Mail Address: | vboranova@imf.org, rhuidrom@imf.org, eozturk@imf.org, astepanyan@imf.org, ptopalova@imf.org, zshy1990@umd.edu |
| JEL Classification Numbers: | F42, F44 |
| Keywords: | Auto sector, supply chains, spillovers, Europe |
| Author’s E-Mail Address: | vboranova@imf.org, rhuidrom@imf.org, eozturk@imf.org, astepanyan@imf.org, ptopalova@imf.org, zshy1990@umd.edu |
Contents
I. Introduction
II. St ylized Facts
III. Supply Chains in the European Auto Sector
IV. Labor Supply Shocks and the Auto Sector: Analytical framework
V. Results
VI. Robustness
VII. Conclusions
References
FIGURES
1A. Gross Value Added of the Auto Industry
1B. Employment in the Auto Industry
2. Exports of Cars and Parts in Europe, 2018
3A. Global Vehicle Production by Regions
3B. Share of Global Vehicle Production by Regions
4A. EU: Contribution to the Change in Industrial Production, Manufacturing
4B. EU: Industrial Production and Production of Motor Vehicles and Parts
5. Vehicle Production: 1999–2020
6. Contribution to Change in Global Vehicle Production
7. Growth in European Vehicle Production
8. Quarterly Vehicle Production in Europe
9. Euro Area: Equipment as a factor Limiting Production
10. EU: Car Sales
12. EU: Car Sales and Durable Goods Consumption in Europe Following Recessions
13. Car Sales by Fuel Type: Germany, France, UK, Italy, Spain
14. Length of Supply Chains
15. Intermediate Input Usage
16. Upstreamness Indicator
17. Destinations of Value-Added Exports
18. Impact on European Auto Sector
19. Impact on European Auto Sector: Decomposition
20. Lockdowns and the Auto Sector in Europe: Direct Impact vs Effective Lockdown Stringency
21. Impact on European Auto Sector: Domestic Spillovers
22. Impact on European Auto Sector: Foreign Spillovers
23. Impact on European Auto Sector
24. Impact on Real GDP
25. Impact on Real GDP vs. Sectoral Share
26. Impact on European Auto Sector: Robustness Exercises
APPENDICES
A. Figures and Tables
B. Model derivations
C. List of Countries and Sectors
We are grateful to Jaewoo Lee, Andrei Levchenko, Galen Sher, and seminar participants at the IMF for helpful discussions and to Barthelemy Bonadio and Andrei Levchenko for sharing their codes. We would like to thank Hyun Woo Park and Nomelie Veluz for excellent research and formatting assistance respectively. All remaining errors are our own.