The macroeconomic effects of global supply chain reorientation

Daragh Clancy, Vilém Valenta and Donal Smith
Additional contact information
Vilém Valenta: European Central Bank
Donal Smith: Organisation for Economic Cooperation & Development

No 5/RT/23, Research Technical Papers from Central Bank of Ireland

Abstract: Policymakers around the world are (re)considering the trade-off between efficiency and resilience inherent in global supply chains. Many have introduced legislation seeking to encourage the local production of key inputs to reduce risks from excessive dependencies on external suppliers. We analyse the macroeconomic effects of localisation policies, such as reshoring and friend-shoring production, using a novel non-tariff mechanism in a global dynamic general equilibrium model. We find that localisation policies imply transition costs and their long-term impact on aggregate domestic output are generally negative. The size (and sign) of the impact depends on whether these policies are implemented unilaterally or as part of a global shift and, most importantly, the extent to which they lead to a reduction in domestic competition and productivity. Untargeted localisation policies are also unlikely to achieve their goal of improving macroeconomic resilience, as sensitivity to regional shocks increases, while resilience to global shocks improves only marginally. Based on these findings, we provide some tentative recommendations for policymakers considering implementing a localisation agenda.

Keywords: Euro area; Friendshoring; Reshoring; Strategic autonomy. (search for similar items in EconPapers)
JEL-codes: F13 F41 F45 F62 (search for similar items in EconPapers)
Date: 2023-06
New Economics Papers: this item is included in nep-dge, nep-int, nep-mac and nep-opm
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Related works:
Journal Article: The Macroeconomic Effects of Global Supply Chain Reorientation (2024)
Working Paper: The macroeconomic effects of global supply chain reorientation (2024)
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