The Propagation of the Economic Impact through Supply Chains: The Case of a Mega-City Lockdown against the Spread of COVID-19

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.