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Economic Costs of Friend-Shoring

Author

Listed:
  • Beata S. Javorcik
  • Lucas Kitzmüller
  • Helena Schweiger
  • Muhammed A. Yildirim
  • Beata Smarzynska Javorcik
  • Muhammed Ali Yildirim

Abstract

Geo-political tensions and disruptions to global value chains have led policy makers to re-evaluate their approach to globalisation. Many countries are considering friend-shoring – trading primarily with countries sharing similar values – as a way of minimising exposure to weaponisation of trade and securing access to critical inputs. If followed through, this process has the potential to reverse global economic integration of recent decades. This paper estimates the economic costs of friend-shoring using a quantitative model incorporating inter-country inter-industry linkages. The results suggest that friend-shoring may lead to real GDP losses of up to 4.7% of GDP in some economies. Thus, although friend-shoring may provide insurance against extreme disruptions and increase the security of supply of vital inputs, it would come at a substantial cost.

Suggested Citation

  • Beata S. Javorcik & Lucas Kitzmüller & Helena Schweiger & Muhammed A. Yildirim & Beata Smarzynska Javorcik & Muhammed Ali Yildirim, 2023. "Economic Costs of Friend-Shoring," CESifo Working Paper Series 10869, CESifo.
    • Handle: RePEc:ces:ceswps:_10869
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    File URL: https://www.cesifo.org/DocDL/cesifo1_wp10869.pdf
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    References listed on IDEAS

    as
    1. 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..
    2. Ricardo Hausmann & Ulrich Schetter & Muhammed A. Yildirim, 2022. "On the Design of Effective Sanctions: The Case of Bans on Exports to Russia," CID Working Papers 417, Center for International Development at Harvard University.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    friend-shoring; regionalisation; global trade and production network; international I-O linkages;
    All these keywords.

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions
    • F60 - International Economics - - Economic Impacts of Globalization - - - General
    • R15 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Econometric and Input-Output Models; Other Methods

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