Abstract
To counteract the adverse effects of shocks, such as the global pandemic, on the economy, governments have discussed policies to improve the resilience of supply chains by reducing dependence on foreign suppliers. In this paper, we develop and quantify an adaptive production network model to study network resilience and the consequences of reshoring of supply chains. In our model, firms exit due to exogenous shocks or the propagation of shocks through the network, while firms can replace suppliers they have lost due to exit subject to switching costs and search frictions. Applying our model to a large international firm-level production network dataset, we find that restricting buyer–supplier links via reshoring policies reduces output and increases volatility and that volatility can be amplified through network adaptivity.
| Original language | English |
|---|---|
| Article number | e2203730119 |
| Pages (from-to) | 1-10 |
| Number of pages | 10 |
| Journal | Proceedings of the National Academy of Sciences of the United States of America |
| Volume | 119 |
| Issue number | 38 |
| DOIs | |
| Publication status | Published - 20 Sept 2022 |
Bibliographical note
Funding Information:We thank Daron Acemoglu, Marios Angeletos, Vasco Carvalho, Matt Elliott, Kenan Huremovic, Matt Jackson, Glenn Magerman, Massimo Riccaboni, Julien Sauvagnat, Fernando Vega-Redondo, Nico Voigtlaender, and seminar participants at Cambridge University, Tinbergen Institute, Institutions, Markets, Technologies Lucca, the University of Zurich, Vanderbilt University, the European Economic Association Meeting in Cologne, and the Yau Mathematical Sciences Center of Tsinghua University for their comments. Moreover, we thank Barthelemy Bonadio, Jaedo Choi, and Marc Biedermann for the excellent research assistance.
Publisher Copyright:
Copyright © 2022 the Author(s). Published by PNAS.
Funding
We thank Daron Acemoglu, Marios Angeletos, Vasco Carvalho, Matt Elliott, Kenan Huremovic, Matt Jackson, Glenn Magerman, Massimo Riccaboni, Julien Sauvagnat, Fernando Vega-Redondo, Nico Voigtlaender, and seminar participants at Cambridge University, Tinbergen Institute, Institutions, Markets, Technologies Lucca, the University of Zurich, Vanderbilt University, the European Economic Association Meeting in Cologne, and the Yau Mathematical Sciences Center of Tsinghua University for their comments. Moreover, we thank Barthelemy Bonadio, Jaedo Choi, and Marc Biedermann for the excellent research assistance.
Keywords
- aggregate fluctuations
- production networks
- resilience
- shocks
- supply chains
