Jodie Keane, April 2020
Unlike the 2008/09 Global Financial Crisis, which preceded the Great Recession, COVID-19 is both a Keynesian demand shock and a supply shock. In addition to the transmission of a collapse in demand, supply shocks will occur because economic activity itself must stop to contain the spread of COVID-19. There is no historical parallel to this in modern times.
Comparative developing country case studies during the GFC showed how value chain governance – between firms and as influenced by governments – mediated vulnerability to the exogenous trade shock and its transmission. The effects will depend on the fiscal and monetary policies of governments and private sector/consumer behaviour within the country as well as across and between countries. Understanding these systems and their interaction is crucial to effective risk management. This is why the relationships between buyers and suppliers within global value chains (GVCs) matter.
Photo: Current scene in a market place in Kenya. World Bank / Sambrian Mbaabu. Licence: (CC BY-NC-ND 2.0)