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The limits of local laws in global supply chains: Cutting ties or “edutrading” procurement partners?

Author

Listed:
  • Keilbach, Hendrik
  • Koetter, Michael
  • Ludolph, Melina
  • Woebbeking, Fabian

Abstract

We study the procurement patterns of non-listed firms and examine how these often-overlooked, yet pivotal players in global supply chains adjust their sourcing when they anticipate accountability for externalities beyond their organizational boundaries. Using granular customs data and a surprise information release about the German Supply Chain Due Diligence Act, product-level regressions reveal that importing firms are 3.5 percentage points less likely to source a product from countries where the relevant production sector exhibits elevated ESG-related risks, suggesting that firms tend to cut ties with higher-risk suppliers. The effects are concentrated among firms with well-diversified supplier networks for a product and higher profitability, suggesting they have the necessary flexibility to respond quickly to anticipated regulatory pressure. Our findings suggest that mandates requiring firms to incorporate broad sustainability considerations into their operational decisions may have limits, particularly for non-listed firms.

Suggested Citation

  • Keilbach, Hendrik & Koetter, Michael & Ludolph, Melina & Woebbeking, Fabian, 2026. "The limits of local laws in global supply chains: Cutting ties or “edutrading” procurement partners?," Journal of Development Economics, Elsevier, vol. 182(C).
    • Handle: RePEc:eee:deveco:v:182:y:2026:i:c:s0304387826000878
    DOI: 10.1016/j.jdeveco.2026.103804
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    Keywords

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    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F18 - International Economics - - Trade - - - Trade and Environment
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation

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