DP16672 Risks and global supply chains: What we know and what we need to know

Author(s): Richard Baldwin, Rebecca Freeman
Publication Date: October 2021
Date Revised: November 2021
Keyword(s): Globalization, GVCs, input reliance, resilience, risk, Supply Chains
JEL(s): F10, F12, F13, F14, F15
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=16672

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 light of current policy proposals and advancing technology before pointing to the rich menu of topics for future research on the risk-GSC nexus.