Working Paper: NBER ID: w29444
Authors: Richard Baldwin; Rebecca Freeman
Abstract: Recent supply disruptions catapulted the issue of risk in global supply chains (GSCs) to the top of policy agendas and created the impression that shortages would have been less severe if GSCs were either shorter and more domestic, or more diversified. But is this right? We start our answer by reviewing studies that look at risks to and from GSCs, and how GSCs have recovered from past shocks. We then look at whether GSCs are too risky—starting with business research on how firms approach the cost-resiliency trade-off. We propose the risk-versus-reward framework from portfolio theory as a good way to evaluate whether anti-risk policy is justified. We then discuss how exposures to foreign shocks are measured and argue that exposure is higher than direct indicators imply. Finally, we consider the future of GSCs in the light of current policy proposals and advancing technology before pointing to the rich menu of topics for future research on the risk-GSC nexus.
Keywords: No keywords provided
JEL Codes: F10; F13; F14; F15; F23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Global supply chains (GSCs) (F60) | exposure to foreign shocks (F31) |
| exposure to foreign shocks (F31) | economic fluctuations (E32) |
| Global supply chains (GSCs) (F60) | economic fluctuations (E32) |
| policies aimed at reshoring or diversifying supply chains (L52) | increased domestic vulnerabilities (F52) |
| Global supply chains (GSCs) (F60) | mechanisms for shock diversification (D47) |
| Global supply chains (GSCs) (F60) | risks (D81) |
| Global supply chains (GSCs) (F60) | welfare effects during shocks (D69) |