Inventories, Diversification,and Trade Vulnerabilities

R. Lafrogne-Joussier
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R. Lafrogne-Joussier: INSEE

Documents de Travail de l'Insee - INSEE Working Papers from Institut National de la Statistique et des Etudes Economiques

Abstract: To reduce their exposure to supply-chain risk, firms commonly rely on two strategies: input stockpiling and diversification of supply sources. This paper presents new evidence on how French manufacturing firms used inventories and diversified their country-specific supply risks between 2012 and 2023. The use of these strategies varies widely: large firms are generally more diversified and maintain lower inventories relative to smaller firms. Overall, firms that diversify more tend to stockpile less, even conditional on firm size. Diversification is also linked to lower import volatility. Together, these patterns suggest that inventories act as a buffer when firms are unable to reduce risk through diversification. These insights matter for assessing trade vulnerabilities: products sourced from few countries may appear exposed to risk, yet in practice they are often imported by firms holding large stocks. Accounting for inventories can halve the number of products considered highly vulnerable.

Date: 2025
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https://www.insee.fr/en/statistiques/8669390 Document de travail de la DESE numero 2025-22 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:nse:doctra:2025-22

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