Economic policy uncertainty and global supply chain fragmentation: An importing country perspective

Global supply chain (GSC) fragmentation has a profound effect on global production and supply patterns. Building on the supply chain fragmentation measurement methodology proposed by Timmer et al. (2021), this study extends the existing analytical framework to examine the impact of economic policy uncertainty (EPU) on GSC fragmentation and its underlying mechanisms and explores viable pathways for enhancing supply chain resilience. The key findings are as follows. EPU exhibits a U-shaped relationship with GSC fragmentation by influencing two-way foreign direct investment and internal demand. A distinct distance effect characterizes the influence of EPU (from both importing and supplying countries) on bilateral GSC fragmentation. Specifically, geographic distance and an expanded relative gap in political stability and anti-terrorism efforts tend to amplify the impact of importing countries’ EPU, whereas the relative gap in globalization levels exerts an opposing moderating effect. In contrast, economic distance interacts with the EPU of supplying countries to shape fragmentation outcomes. The forward linkage of innovation chains and positive shocks to intermediate product demand help mitigate the disruptive impact of EPU on GSC fragmentation, thereby strengthening the resilience of GSCs amid heightened policy uncertainty. These findings have significant implications for safeguarding the security and stability of GSCs in an era of persistent policy volatility.