[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/ecb/ecbwps/20242903.html
   My bibliography  Save this paper

The macroeconomic effects of global supply chain reorientation

Author

Listed:
  • Clancy, Daragh
  • Smith, Donal
  • Valenta, Vilém
Abstract
Policymakers around the world are encouraging the local production of key inputs to reduce risks from excessive dependencies on foreign suppliers. We analyse the macroeconomic effects of supply chain reorientation through localisation policies, using a global dynamic general equilibrium model. We proxy non-tariff measures, such as the stricter enforcement of regulatory standards, which reduce import quantity but do not directly alter costs and prices. These measures have, so far, been a key component of attempts to reshore production and are an increasingly popular trade policy instrument in general. Focusing on the euro area, we find that localisation policies are inflationary, imply transition costs and generally have a negative long-run effect on aggregate domestic output. The size (and sign) of the impact depends on whether these policies are implemented unilaterally or induce a retaliation from trade partners, and the extent to which they reduce domestic competition and productivity. We provide some recommendations for policymakers considering implementing a localisation agenda. JEL Classification: F13, F41, F45, F62

Suggested Citation

  • Clancy, Daragh & Smith, Donal & Valenta, Vilém, 2024. "The macroeconomic effects of global supply chain reorientation," Working Paper Series 2903, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20242903
    as

    Download full text from publisher

    File URL: https://www.ecb.europa.eu//pub/pdf/scpwps/ecb.wp2903~8bc715c800.en.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Vasco M Carvalho & Makoto Nirei & Yukiko U Saito & Alireza Tahbaz-Salehi, 2021. "Supply Chain Disruptions: Evidence from the Great East Japan Earthquake," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 136(2), pages 1255-1321.
    2. Ioannou, Demosthenes & Pérez, Javier J. & Almeida, Ana M. & Balteanu, Irina & Kataryniuk, Ivan & Geeroms, Hans & Vansteenkiste, Isabel & Weber, Pierre-François & Attinasi, Maria Grazia & Buysse, Krist, 2023. "The EU’s Open Strategic Autonomy from a central banking perspective - Challenges to the monetary policy landscape from a changing geopolitical environment," Occasional Paper Series 311, European Central Bank.
    3. Francesco Caselli & Miklós Koren & Milan Lisicky & Silvana Tenreyro, 2020. "Diversification Through Trade," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 135(1), pages 449-502.
    4. Florin O. Bilbiie & Fabio Ghironi & Marc J. Melitz, 2019. "Monopoly Power and Endogenous Product Variety: Distortions and Remedies," American Economic Journal: Macroeconomics, American Economic Association, vol. 11(4), pages 140-174, October.
    5. Beata Javorcik & Lucas Kitzmüller & Helena Schweiger & Muhammed A. Yıldırım, 2024. "Economic costs of friendshoring," The World Economy, Wiley Blackwell, vol. 47(7), pages 2871-2908, July.
    6. Arnaud Costinot & Andrés Rodríguez-Clare, 2018. "The US Gains from Trade: Valuation Using the Demand for Foreign Factor Services," Journal of Economic Perspectives, American Economic Association, vol. 32(2), pages 3-24, Spring.
    7. Feenstra, Robert C., 2018. "Restoring the product variety and pro-competitive gains from trade with heterogeneous firms and bounded productivity," Journal of International Economics, Elsevier, vol. 110(C), pages 16-27.
    8. Bokan, N. & Gerali, A. & Gomes, S. & Jacquinot, P. & Pisani, M., 2018. "EAGLE-FLI: A macroeconomic model of banking and financial interdependence in the euro area," Economic Modelling, Elsevier, vol. 69(C), pages 249-280.
    9. Bonadio, Barthélémy & Huo, Zhen & Levchenko, Andrei A. & Pandalai-Nayar, Nitya, 2021. "Global supply chains in the pandemic," Journal of International Economics, Elsevier, vol. 133(C).
    10. Michał Brzoza-Brzezina & Pascal Jacquinot & Marcin Kolasa, 2014. "Can We Prevent Boom-Bust Cycles During Euro Area Accession?," Open Economies Review, Springer, vol. 25(1), pages 35-69, February.
    11. Steven Ongena & Alexander Popov & Neeltje Van Horen, 2019. "The Invisible Hand of the Government: Moral Suasion during the European Sovereign Debt Crisis," American Economic Journal: Macroeconomics, American Economic Association, vol. 11(4), pages 346-379, October.
    12. Gabriel Felbermayr & Hendrik Mahlkow & Alexander Sandkamp, 2023. "Cutting through the value chain: the long-run effects of decoupling the East from the West," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 50(1), pages 75-108, February.
    13. Robert C. Feenstra, 2018. "Alternative Sources of the Gains from International Trade: Variety, Creative Destruction, and Markups," Journal of Economic Perspectives, American Economic Association, vol. 32(2), pages 25-46, Spring.
    14. Rita Cappariello & Sebastian Franco-Bedoya & Vanessa Gunnella & Gianmarco I. P. Ottaviano, 2020. "Rising protectionism and global value chains: quantifying the general equilibrium effects," CEP Discussion Papers dp1682, Centre for Economic Performance, LSE.
    15. Barro, Robert J & Sala-i-Martin, Xavier, 1997. "Technological Diffusion, Convergence, and Growth," Journal of Economic Growth, Springer, vol. 2(1), pages 1-26, March.
    16. Faruqee, Hamid & Laxton, Douglas & Muir, Dirk & Pesenti, Paolo, 2008. "Would protectionism defuse global imbalances and spur economic activity? A scenario analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 32(8), pages 2651-2689, August.
    17. Oya Celasun & Mr. Niels-Jakob H Hansen & Ms. Aiko Mineshima & Mariano Spector & Jing Zhou, 2022. "Supply Bottlenecks: Where, Why, How Much, and What Next?," IMF Working Papers 2022/031, International Monetary Fund.
    18. Lindé, Jesper & Pescatori, Andrea, 2019. "The macroeconomic effects of trade tariffs: Revisiting the Lerner symmetry result," Journal of International Money and Finance, Elsevier, vol. 95(C), pages 52-69.
    19. Lukasz A. Drozd & Jaromir B. Nosal, 2012. "Understanding International Prices: Customers as Capital," American Economic Review, American Economic Association, vol. 102(1), pages 364-395, February.
    20. Góes, Carlos & Bekkers, Eddy, 2022. "The impact of geopolitical conflicts on trade, growth, and innovation," WTO Staff Working Papers ERSD-2022-9, World Trade Organization (WTO), Economic Research and Statistics Division.
    21. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
    22. Wilko Bolt & Kostas Mavromatis & Sweder van Wijnbergen, "undated". "The Global Macroeconomics of a Trade War: The EAGLE model on the US-China trade conflict," Tinbergen Institute Discussion Papers 19-015/VIII, Tinbergen Institute.
    23. Lukasz A. Drozd & Sergey Kolbin & Jaromir B. Nosal, 2021. "The Trade-Comovement Puzzle," American Economic Journal: Macroeconomics, American Economic Association, vol. 13(2), pages 78-120, April.
    24. Julian di Giovanni & Andrei A. Levchenko, 2009. "Trade Openness and Volatility," The Review of Economics and Statistics, MIT Press, vol. 91(3), pages 558-585, August.
    25. Clancy, Daragh & Jacquinot, Pascal & Lozej, Matija, 2016. "Government expenditure composition and fiscal policy spillovers in small open economies within a monetary union," Journal of Macroeconomics, Elsevier, vol. 48(C), pages 305-326.
    26. Alessandra Peter & Cian Ruane, 2023. "The Aggregate Importance of Intermediate Input Substitutability," NBER Working Papers 31233, National Bureau of Economic Research, Inc.
    27. Andrius Kazukauskas & Carol Newman & Daragh Clancy & Johannes Sauer, 2013. "Disinvestment, Farm Size, and Gradual Farm Exit: The Impact of Subsidy Decoupling in a European Context," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 95(5), pages 1068-1087.
    28. Gene M. Grossman & Elhanan Helpman & Hugo Lhuillier, 2021. "Supply Chain Resilience: Should Policy Promote Diversification or Reshoring?," Working Papers 2021-8, Princeton University. Economics Department..
    29. Rebecca Freeman & Richard Baldwin, 2022. "Risks and Global Supply Chains: What We Know and What We Need to Know," Annual Review of Economics, Annual Reviews, vol. 14(1), pages 153-180, August.
    30. Khalil, Makram & Strobel, Felix, 2024. "US trade policy and the US dollar," Journal of International Economics, Elsevier, vol. 151(C).
    31. Zhaohui Niu & Chang Liu & Saileshsingh Gunessee & Chris Milner, 2018. "Non-tariff and overall protection: evidence across countries and over time," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 154(4), pages 675-703, November.
    32. Marco Fugazza, 2013. "The Economics Behind Non-Tariff Measures: Theoretical Insights And Empirical Evidence," UNCTAD Blue Series Papers 57, United Nations Conference on Trade and Development.
    33. Gomes, S. & Jacquinot, P. & Pisani, M., 2012. "The EAGLE. A model for policy analysis of macroeconomic interdependence in the euro area," Economic Modelling, Elsevier, vol. 29(5), pages 1686-1714.
    34. Dani Rodrik, 1998. "Why Do More Open Economies Have Bigger Governments?," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 997-1032, October.
    35. Lebastard, Laura & Matani, Marco & Serafini, Roberta, 2023. "GVC exporter performance during the COVID-19 pandemic: the role of supply bottlenecks," Working Paper Series 2766, European Central Bank.
    36. Martin, Alberto & Vergote, Wouter, 2008. "On the role of retaliation in trade agreements," Journal of International Economics, Elsevier, vol. 76(1), pages 61-77, September.
    37. Chiara Criscuolo & Jonathan Timmis, 2017. "The Relationship Between Global Value Chains and Productivity," International Productivity Monitor, Centre for the Study of Living Standards, vol. 32, pages 61-83, Spring.
    38. Mr. Benjamin L Hunt & Susanna Mursula & Mr. Rafael A Portillo & Marika Santoro, 2020. "Modeling Trade Tensions: Different Mechanisms in General Equilibrium," IMF Working Papers 2020/279, International Monetary Fund.
    39. Christine Arriola & Sophie Guilloux-Nefussi & Seung-Hee Koh & Przemyslaw Kowalski & Elena Rusticelli & Frank van Tongeren, 2020. "Efficiency and risks in global value chains in the context of COVID-19," OECD Economics Department Working Papers 1637, OECD Publishing.
    40. Campos, Rodolfo G. & Estefania-Flores, Julia & Furceri, Davide & Timini, Jacopo, 2023. "Geopolitical fragmentation and trade," Journal of Comparative Economics, Elsevier, vol. 51(4), pages 1289-1315.
    41. Bekkers, Eddy & Hunt, Ben & Veld, Jan in 't & Maliszewska, Maryla & Portillo, Rafael & Prestipino, Andrea & Santoro, Marika & Tsigas, Marinos & van der Mensbrugghe, Dominique & van Roye, Bjorn, 2020. "Modeling Trade Tensions: Macroeconomic and Trade Models in Different Institutions," Conference papers 333231, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    42. Wilko Bolt & Kostas Mavromatis & Sweder van Wijnbergen, "undated". "The Global Macroeconomics of a Trade War: The EAGLE model on the US-China trade conflict," Tinbergen Institute Discussion Papers 19-015/VIII, Tinbergen Institute.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Byrne, Shane & Devine, Kenneth & King, Michael & McCarthy, Yvonne & Palmer, Christopher, 2023. "The Last Mile of Monetary Policy: Inattention, Reminders, and the Refinancing Channel," Research Technical Papers 6/RT/23, Central Bank of Ireland.
    2. Jacquinot, Pascal & Lozej, Matija & Pisani, Massimiliano, 2022. "Macroeconomic effects of tariffs shocks: The role of the effective lower bound and the labour market," Journal of International Money and Finance, Elsevier, vol. 120(C).
    3. Garcia, Pablo & Jacquinot, Pascal & Lenarčič, Črt & Lozej, Matija & Mavromatis, Kostas, 2023. "Global models for a global pandemic: The impact of COVID-19 on small euro area economies," Journal of Macroeconomics, Elsevier, vol. 77(C).
    4. Pietro Cova & Alessandro Notarpietro & Massimiliano Pisani, 2020. "Protectionism and the effective lower bound in the euro area," Temi di discussione (Economic working papers) 1286, Bank of Italy, Economic Research and International Relations Area.
    5. Eva Ortega & Chiara Osbat, 2020. "Exchange rate pass-through in the euro area and EU countries," Occasional Papers 2016, Banco de España.
    6. Cajal-Grossi, Julia & Del Prete, Davide & Macchiavello, Rocco, 2023. "Supply chain disruptions and sourcing strategies," International Journal of Industrial Organization, Elsevier, vol. 90(C).
    7. Hickey, Rónán & Lozej, Matija & Smyth, Diarmaid, 2019. "Government Investment, Its Financing and the Public Capital Stock: A Small Open Economy Perspective," Research Technical Papers 9/RT/19, Central Bank of Ireland.
    8. Ignacia Cuevas & Thomas Bourany & Gustavo González, 2024. "Supply Chain Uncertainty and Diversification," Working Papers Central Bank of Chile 1018, Central Bank of Chile.
    9. Audzei, Volha & Brůha, Jan, 2022. "A model of the Euro area, China, and the United States: Trade links and trade wars," Economic Modelling, Elsevier, vol. 111(C).
    10. Alban Moura & Kyriacos Lambrias, 2018. "LU-EAGLE: A DSGE model for Luxembourg within the euro area and global economy," BCL working papers 122, Central Bank of Luxembourg.
    11. Gloria Allione & Claire Giordano, 2023. "Are the Happy Few still happy? Exporter heterogeneity during the COVID-19 pandemic in Italy," Questioni di Economia e Finanza (Occasional Papers) 816, Bank of Italy, Economic Research and International Relations Area.
    12. Richard Baldwin & Rebecca Freeman & Angelos Theodorakopoulos, 2023. "Hidden Exposure: Measuring US Supply Chain Reliance," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 54(2 (Fall)), pages 79-167.
    13. Vannoorenberghe, Gonzague & Wang, Zheng & Yu, Zhihong, 2016. "Volatility and diversification of exports: Firm-level theory and evidence," European Economic Review, Elsevier, vol. 89(C), pages 216-247.
    14. Sandra Gomes & Pascal Jacquinot & Matthias Mohr & Massimiliano Pisani, 2013. "Structural Reforms and Macroeconomic Performance in the Euro Area Countries: A Model-Based Assessment," International Finance, Wiley Blackwell, vol. 16(1), pages 23-44, February.
    15. Matus Senaj & Milan Vyskrabka, 2015. "Labor Tax Harmonization in a Multi-Country Model," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 65(3), pages 192-210, May.
    16. Nenci, Silvia & Fusacchia, Ilaria & Giunta, Anna & Montalbano, Pierluigi & Pietrobelli, Carlo, 2022. "Mapping global value chain participation and positioning in agriculture and food: stylised facts, empirical evidence and critical issues," Bio-based and Applied Economics Journal, Italian Association of Agricultural and Applied Economics (AIEAA), vol. 11(2), July.
    17. Eppinger, Peter S. & Felbermayr, Gabriel & Krebs, Oliver & Kukharskyy, Bohdan, 2020. "Covid-19 shocking global value chains," Kiel Working Papers 2167, Kiel Institute for the World Economy (IfW Kiel).
    18. Wilko Bolt & Kostas Mavromatis & Sweder van Wijnbergen, "undated". "The Global Macroeconomics of a Trade War: The EAGLE model on the US-China trade conflict," Tinbergen Institute Discussion Papers 19-015/VIII, Tinbergen Institute.
    19. Kramarz, Francis & Martin, Julien & Mejean, Isabelle, 2020. "Volatility in the small and in the large: The lack of diversification in international trade," Journal of International Economics, Elsevier, vol. 122(C).
    20. Kurz, Christopher & Senses, Mine Z., 2016. "Importing, exporting, and firm-level employment volatility," Journal of International Economics, Elsevier, vol. 98(C), pages 160-175.

    More about this item

    Keywords

    general equilibrium; reshoring; strategic autonomy;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ecb:ecbwps:20242903. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Official Publications (email available below). General contact details of provider: https://edirc.repec.org/data/emieude.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.