Why pandemic hit some regions harder than others

Regions dominated by contact-intensive industries such as retail, hospitality, food services, and entertainment bore the brunt of the downturn because these activities were the most constrained by lockdowns and distancing measures.

A new study provides a data-driven explanation for why the economic fallout from the first wave of the COVID-19 pandemic varied so sharply across European regions. The research, titled “Regional Economic Impact of COVID-19: The Role of Sectoral Structure and Trade Linkages” and published in the Open Economies Review, combines regional labour market data and input–output trade linkages to pinpoint the factors that determined the severity of the crisis across France, Germany, Italy, and Spain.

The authors reveal that while health-related restrictions and infection rates were visible drivers, the real story of regional disparity lies in where people worked and how regional economies were tied to domestic and cross-border supply chains. Their findings shed light on the need for structural resilience in both industry composition and trade networks to better withstand future crises.

How did sectoral structures shape regional vulnerability?

The study identifies sectoral composition, the types of industries predominant in each region, as a central factor explaining why some areas experienced more severe economic contractions. Regions dominated by contact-intensive industries such as retail, hospitality, food services, and entertainment bore the brunt of the downturn because these activities were the most constrained by lockdowns and distancing measures.

On the other hand, regions with higher shares of employment in teleworkable sectors, including many professional, financial, and IT services, saw a less dramatic surge in labour market distress. The authors used short-time work (STW) scheme participation as a high-frequency proxy for regional economic stress and found significant variation across regions that mirrored their industrial make-up.

According to the study, the ability to continue operations remotely proved to be a crucial buffer against the economic costs of containment measures. This finding makes clear that future economic resilience depends not only on healthcare preparedness but also on supporting the digital transformation of industries and labour markets.

How did trade linkages amplify the economic shock?

The study shows that trade linkages, both domestic and cross-border, played a decisive role in shaping regional outcomes. Regions that were highly integrated into intra-EU supply chains suffered disproportionately during the first wave. When border restrictions and supply chain bottlenecks disrupted the movement of intermediate goods, these regions experienced sharper spikes in short-time work enrolment.

The analysis finds that a one-standard-deviation increase in a region’s exposure to input supplies from other EU regions was associated with an estimated 8 percent rise in employees placed on short-time work during the early pandemic period. This demonstrates how production-side disruptions spread across borders, magnifying the impact in regions dependent on external suppliers.

Conversely, demand-side effects were more localized, with regions more reliant on domestic customers in lockdown-hit areas facing greater reductions in activity. This dual dynamic, supply disruptions across borders and demand losses within countries, highlights the complex nature of economic contagion in a highly integrated Europe.

The authors argue that the findings call for stronger cross-border coordination in supply chain management and resilience planning. The pandemic revealed that while global and European integration brings efficiency, it also exposes regions to cascading risks when mobility and trade are disrupted.

How did policies affect regional recovery?

The study highlights the significant role of policy interventions in shaping regional economic trajectories. The authors found that stringent containment and health measures, while necessary for public health, intensified short-term labour market distress by restricting business operations in already vulnerable sectors.

However, economic support measures, most notably wage subsidy programs such as short-time work schemes, played a crucial role in mitigating the depth of the downturn and accelerating recovery once restrictions eased. These programs helped maintain employer–employee relationships and allowed regions to rebound more quickly as conditions improved.

The research suggests that future crisis responses need to balance health and economic priorities. Rapid deployment of targeted support to the most exposed sectors and regions, coupled with policies that facilitate digital and structural transformation, can reduce the long-term scarring effects of pandemics or other systemic shocks.

A roadmap for building regional resilience

The study offers an important lesson for policymakers: regional disparities in economic outcomes during crises are not just random or solely health-driven. They arise from structural characteristics, sectoral composition, cross-regional and cross-border trade dependencies, and can be mitigated through strategic policy and investment choices.

The authors recommend strengthening the resilience of European supply chains to reduce vulnerability to cross-border disruptions and fostering the growth of sectors that can operate under crisis conditions, such as those compatible with remote work. They also call for enhancing data-driven regional monitoring so that support measures can be tailored to local needs quickly during future emergencies.

The study makes clear that economic geography matters profoundly in shaping how shocks unfold and propagate. For governments and international institutions, this evidence highlights the importance of preparing not just at the national level but with a clear view of regional strengths and weaknesses.