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Economic Costs of Friend-shoring

Author

Listed:
  • Beata S. Javorcik
  • Lucas Kitzmueller
  • Helena Schweiger
  • Muhammed A. Yildirim

    (Center for International Development at Harvard University)

Abstract

Geo-political tensions and disruptions to global value chains have led policymakers to reevaluate their approach to globalisation. Many countries are considering regionalisation and 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 4.6% of global GDP. Thus, although friend-shoring may provide insurance against extreme disruptions and increase the security of supply of vital inputs, it would come at a significant cost.

Suggested Citation

  • Beata S. Javorcik & Lucas Kitzmueller & Helena Schweiger & Muhammed A. Yildirim, 2022. "Economic Costs of Friend-shoring," CID Working Papers 422, Center for International Development at Harvard University.
    • Handle: RePEc:cid:wpfacu:422
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    References listed on IDEAS

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    Keywords

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    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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