Policies to strengthen the resilience of global value chains
Empirical evidence from the COVID-19 shock
Widespread supply disruptions in the wake of the COVID-19 pandemic and the Russian
Federation’s large-scale aggression against Ukraine have raised concerns among policy
makers that globalised value chains expose domestic production to shocks from abroad.
This paper uses new indicators of global value chain dependencies and exogenous pandemic
shocks to econometrically estimate the effects of supply disruptions abroad on domestic
output. The results suggest that the adverse effects of supply disruptions are particularly
large when concentration of supplying countries and supplying firms is high. Counterfactual
simulations of the econometric model suggest that diversification of suppliers would
have sizeable benefits in terms of shielding domestic production against country-specific
supply shocks, with partial onshoring of production having only small additional benefits.
Technological innovation that reduces foreign dependencies, such as the substitution
of renewable energies for fossil fuels, can have similar benefits as diversification.
Available from February 21, 2023
In series:OECD Science, Technology and Industry Policy Papersview more titles