Working Paper: CEPR ID: DP9103
Authors: Richard Baldwin
Abstract: Global supply chains (GSCs) are transforming the world. This paper explores why they emerged, why they are significant and future directions they are likely to take along with some implications for policy. After putting global supply chains into an historical perspective, the paper presents an economic framework for understanding the functional and geographical unbundling of production. The fundamental trade off in supply chain fractionalisation is between specialisation gains and coordination costs. The key trade-off in supply chain dispersion is between dispersion and agglomeration forces. Supply-chain trade should be not viewed as standard trade in parts and components rather than final goods. Production sharing has linked cross-border flows of goods, investment, services, know-how and people in novel ways. The paper suggest that future of global supply chains will be influenced by: 1) improvements in coordination technology that lowers the cost of functional and geographical unbundling, 2) improvements in computer integrated manufacturing that lowers the benefits of specialisation and shifts stages toward greater skill-, capital, and technology-intensity, 3) narrowing of wage gaps that reduces the benefit of North-South offshoring to nations like China, and 4) the price of oil that raises the cost of unbundling.
Keywords: global supply chains; globalisation; second unbundling
JEL Codes: F1; F2; F21; F23; F43
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Improvements in coordination technology (L96) | Lower costs for functional and geographical unbundling (D49) |
| Advancements in computer-integrated manufacturing (L63) | Decrease in benefits of specialization (F12) |
| Narrowing wage gaps (J31) | Reduce benefits of offshoring to countries like China (F69) |
| Rising oil prices (Q31) | Increase costs associated with unbundling (D49) |