The consumption patterns under home-based work and lockdowns have changed with consumers decreasing spending on services requiring human interaction.<sup>3</sup> We assume that the demand for the former category of services drops by 15 percent.

- _Fourth,_ we introduce a food supply shock, to simulate a post-harvest loss in food producing sectors. The measures put in place by many governments to contain the spread of COVID-19 can have a disruptive effect on the availability of agro-food products to consumers.<sup>4</sup> Therefore, to take into consideration this disruption of the logistics of food distribution, we assume that the cost of agricultural and food commodities production increases by 3 percent.<sup>5</sup>

- _Fifth_ is the shift toward communication technologies in the service sectors and away from transportation activities, particularly air transportation. To represent the shift from (air) transportation toward communication services used by service sectors we decrease by 20 percent a share of air transport activity in the cost structure of services production and increase the share of communication input to the services cost structure by 20 percent.

- _Finally,_ we introduce a reduction in global oil prices (in 2020 relative to 2019) by increasing the supply of oil. We further assume that in the post-2021 period oil prices would rebound to the 2019 levels in the next several years and exceed 2019 prices by 2030 – in line with International Energy Agency (IEA) price projections (IEA 2020). All these shocks are implemented for the 2020 simulated year together with the GDP target consistent with the GEP 2021 forecast (World Bank 2021).

Our baseline scenario also includes implementation of the trade frictions between the United States and its trading partners (mainly China) implemented in the model via increases in import tariffs based on the detailed tariff line data from the CARD database (Li 2018). We assume that these trade policy shocks stay in the model throughout the entire simulated timeframe, i.e. until 2030. We also include all existing and ongoing trade agreements with a pre-defined set of tariff changes based on the published tariff schedules reported by the International Trade Center (ITC 2020). We refer to this scenario as the globalized world, as it represents the continuation of past trends.

# Policy scenarios

## _Introducing two scenarios that are “hostile” to GVCs and one that is “friendly.”_

Our scenarios examine the impact of changes in trade and climate policies, including reshoring and carbon taxes, on the pace of economic recovery from the COVID-19 pandemic (Figure 2). We further explore how developed and developing countries are impacted by such polices and what actions developing countries can take to cushion the impact of policy shocks. In this section, we discuss the construction of the corresponding policy shocks. A summary of the scenarios is provided in Annex C.

> 3 U.S. retail sales data https://www.census.gov/retail/index.html

> 4 See OECD (2020a).

> 5 <mark>World Bank's Food Price Index increased by 3 percent in 2020 according the October 2020 edition of World Bank's Commodity Markets Outlook.</mark>

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