GLOBAL SUPPLY CHAINS AND THE GREAT TRADE COLLAPSE: GUILTY OR CASUALTY?

Hubert Escaith

Theoretical and Practical Research in the Economic Fields, 2010, vol. 1, issue 1, 27-41

Abstract: With globalization, trade and production have been increasingly interlinked, thanks to the vertical integration of industrial production processes through outsourcing and off-shoring. The expansion of international supply chains determined the apparent increase in trade elasticity observed since the late 1980s, and may explain also the overshooting of trade elasticity during the 2008-2009 trade collapse. After reviewing the available evidences, the article analyses the future of globalized production networks in a post-crisis scenario. In the short term, global rebalancing might prove easier than expected, because trade in intermediate goods inflated artificially some bilateral trade deficits, albeit bilateral exchange rate adjustments have reduced impacts. But supply chains may become smaller and more regional as a result of this rebalancing. This scenario creates a challenge for labour abundant less advanced developing countries in the periphery of the large regional networks, which will find more difficult to attract productive investments. Yet deglobalization remains a distant threat as long as the technical and institutional factors that made possible the internationalization of production are preserved.

Date: 2010
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