Contingent impacts of COVID relief policies under global value chain shortage

Abstract

This paper empirically investigates how governments' COVID-19 relief policies have affected firms in 14 post-communist economies under the global value chain shortage between May 2020 and January 2022. We construct a panel dataset with firms that were continuously observed in three rounds of the World Bank's COVID-19 survey to comprehensively evaluate the dynamic changes in the firms' value chains, production, and finances. We further estimate the determinants of these changes, especially the roles played by the government. We find that under the impact of COVID-19, (1) reduced production capacity or reduced supply significantly increased the likelihood of reduced production and finances, whereas reduced demand had the opposite impact; (2) receiving support from the government augmented the impacts of affected production capacities and value chains; (3) among firms with restricted capacity or supplies, receiving government support increased the likelihood of reduced production and finances; and (4) among firms with abundant capacity and supplies, receiving government support lowered the likelihood of reduced production and finances. Other variables, such as firms' size, remote workforce, online businesses, and exports, also exhibit significant influences.